Observers have been keeping a close eye on what is happening at the Malaysian palm oil trade counters. Having reached the highest ever price of Malaysian Ringgit 4829 towards the end of May 2021 – it has come crashing down to Ringgit 3500. The Malaysian palm oil inventories have touched a 10-month high and reduced off-take from India and China have brought the prices down.

Average palm oil price for June till date at Ringgit 3900 is lowest since February 2021, but the average for June is likely to come down further given the prevailing sentiment in the palm oil market. The spot rates are already the lowest since January 2021. The palm oil is likely to average 20-25 percent lower in June than the record high of $1069/ton recorded in May.

This should be a sigh of relief as Pakistan is all set to post the highest ever palm oil import bill in FY21, with the import share at 4.8 percent. The 11MFY21 palm oil imports at $2.4 billion are 41 percent higher year-on-year, with volumes driving up by 7 percent. The bulk of import is driven by the surge in unit price which has gone up by 33 percent year-on-year.

Pakistan’s own palm oil closing inventory is lower by 100,000 tons from last year, which suggests the current trend of import volume is not likely to slow down any further. While China’s drawdown may be lower, but India’s demand is gradually going to make a comeback. Technical observers have also pointed out at the recent dip, which is one of the steepest barring the Covid-19 inflicted dip that slashed prices by a third in one bear rally. The ongoing bear rally has resulted in a dip of 28 percent in 20 trading sessions – and could well be signaling bottoming out at these levels.

The Finance Bill for FY22 has also proposed abolishment of GST exemption from edible oil and ghee. Palm oil, until recently, has been part of the Sixth Schedule of the Sales Tax Act 1900, which deals with exemptions from General Sales Tax. If there are no complicated meanings to what the Finance Bill proposes, and it becomes part of the Finance Act from July , 2021, consumers must brace themselves for another round of price increase – this time in lieu of taxes, even if palm oil index calms down.