By Mei Mei Chu

KUALA LUMPUR, (Reuters) – While tight edible oil stocks and blockade shipments from Black Sea are likely to hold prices at record levels for the next few months, sticker shock will be expected to reduce global consumption in 2022’s second half, according to industry analysts.

On Wednesday, Malaysian palm oil futures reached an all-time record high of 7,268 Ringgit ($1,736.26) per ton. Soybean oil rose to its highest level in 14 years.

This year, palm oil has increased by more than 50% and soybean oil by almost 40%.

The combination of severe drought in South America and labour shortages in Malaysia (the world’s top palm oil producer) has led to an explosion in edible oil supply worldwide.

Some key markets have already seen a slowdown in purchases due to the price rise.

Graphic: Key global veg & mineral oil prices in US dollars/tonne: https://fingfx.thomsonreuters.com/gfx/ce/movandodnpa/GlobalOilsMar2022.png

Rasheed JanMohammed (chief executive of Westbury Group), said that demand has been low in Pakistan because consumers are reluctant to buy from strangers due to high prices and poor parity.

Dorab Mistry of Indian consumer goods firm Godrej International said that India’s edible oil imports will drop from 13.49 Million tonnes last year to 13,000,000 tonnes by 2021/22 and to about 13 million tonnes by 2021/22.

“Very clearly, demand is reacting…consumption is declining,” said Thomas Mielke, head of Hamburg-based analyst firm Oil World. Consumers in many countries such as India and Pakistan cannot afford these high prices, like those found in Africa, India, Pakistan.

China dropped its crop-year 2021/22 edible oil import projections due to high prices. According to Wednesday’s crop report, released by the Ministry of Agriculture and Rural Affairs, imports were at 8.53 Million tonnes. This is down from the forecast of 9.3 Million tonnes for February.

BETTER PAIN TO COME

Prices are likely to increase further before there is any wider drop in demand.

Analyst James Fry stated that palm oil could reach a new record price of 8,100 Ringgit ($1,9352/tonne) in the coming months due to a drop in edible oil stock and declines in export surpluses from war in Ukraine.

According to him, locally produced crude palm oil prices will range from 6,600-8.100 Ringgit per tonne in Malaysia until July. Prices should fall to 6,200-7,700 Ringgit during the third quarter, when demand is lower and supply increases.

Analysts believe that the total production of palm oil in Indonesia and Malaysia will rise to three million tonnes in 2022, a small increase from last year. This is far below what’s needed to counter supply disruptions in South America or the Black Sea.

Mielke stated that soybean production is expected to drop by 21,000,000 tonnes per year in South America in 2022, compared with a year earlier.

Not only buyers are in crisis, but also exporters. High-profile exporters face increasing domestic costs and are becoming increasingly insecure.

Indonesia’s mandatory palm oil domestic sales will increase to 30%, from 20% starting on Thursday. This is part of government efforts to control cooking oil prices. Trade Minister Muhammad Lutfi stated.

According to Anilkumar bagani, Sunvin Group’s research chief, the latest policy changes could see around 100,000 tonnes per month of palm oil removed from global markets.

Malaysia’s first foreign worker will arrive to its palm plantations in May or June, according to the minister of plantation industries. This is months after original plans to increase labour supply early in this year.

($1 = 4.1860 ringgit)