As the foundations of Japan - the worlds third largest economy- rumbled under Mother Natures mighty force, so did commodity markets all over the world. And in guilty satisfaction, many palm oil consumers would have heaved sighs of relief.
Palm oil futures plunged to as much as $1,079 yesterday, the lowest level since November 2010 on concerns that the devastating calamities would affect the pace of global economic recovery and slow down demand.
Even though Japans palm oil imports are just above 1 percent of global palm oil imports, concerns abound. "Its difficult to ship to Japan. So theres bound to be an excess supply (of vegetable oils) with buyers possibly trying to sell their shipments elsewhere," said a trader in Singapore, quoted in PalmOilHQ - an Australia-based website focusing on the global palm oil industry.
Withdrawal of speculative investors is another key reason for the slump in prices. The previous rally had been attributed to quite an extent to speculative trading in the commodity. But, recent shake-ups in the world - from Libyan uprisings to Japans quake - made investors revisit their choices.
Consequently, speculative monies drained out of commodities - deemed to be risky assets by investors.
Adding to the bearish palm oil momentum were better output forecasts from key palm oil producers, Indonesia and Malaysia.
Indonesias output is expected to go up by about 8 percent this year, while production in Malaysia inched up by 3.5 percent in February, the first gain after three months of decline.
Further, demand from key consumers - India and China - is also expected to ebb as the two emerging economies battle with mounting inflationary pressures, thus reducing price pressures in the near-term.
For Pakistan, where palm oil imports account for around 40 percent of the food import bill, this appears to be good news. Local cooking oil prices follow international prices to some extent, although a previous analysis revealed that the correlation between the two seems a tad weak.
Overall, local cooking oil prices show relatively more stable trends than the erratic changes in international palm oil prices, with surges and slumps in international palm oil prices not closely matched in the local market, not seemingly in similar proportions either (see graph).
Consequently, the current dip in international palm oil prices may not be as attractive as it initially appears.
Besides, volume-based growth in Pakistans palm oil imports surged by over 30 percent in FY11Jul-Jan over the same period last year, indicating shifting consumption trends locally.
Further, according to the Malaysian Palm Oil Council, unlike other regional economies, Pakistan will not cut import duties on palm oil despite escalating food costs as the government needs the revenues.
Therefore, it will be too early to celebrate the current fall in international palm oil prices for local consumers.
Longer-term concerns in the global arena, such as those of bullish sentiments for crude oil (palm oil is used as feedstock for bio-diesel), and of changing consumption patterns in emerging economies, are likely to keep demand buoyed up over a longer time span.
Therefore, concerns in local corners persist as price trends may not be as bearish as it seems.
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