MPO in Bangladesh: What to Expect in the Price-Sensitive Market

Review on Oils and Fats Performance for 1st Half of 2021

Since March 2020, Bangladesh had been dealing with a blow caused by the pandemic that threatened the daily life of its people and the country’s economy, with industrial output, mainly the manufacturing and the services sectors suffering the biggest slump in 2020. Despite having to deal with the COVID crisis up until presently, several economic activities have picked up gradually as the country prepares to exit from the nationwide lockdown that took place for many months. 

One of the sectors that has managed to retain the momentum is the edible oils sector. For the first half of 2021, Bangladesh imported a total of 1.46 million MT of oils and fats, less than 10% decrease as compared to the same period of last year. The reduction is still very much contributed to the COVID-19 situation which has greatly affected the consumption of oils and fats including palm oil. Lower imports of RBD palm oil and RBD palm olein could be seen which is 6.95% lower than corresponding period of 2020. The slower trend of palm oil import is also said to be attributed by the current local trading price of RBD olein which does not support the import price of RBD olein. This has led to the importers being cautious in importing RBD olein to avoid financial loss.

Total Oils and Fats Import (MT)
  Jan-June 2021 Jan-June 2020 Change
Crude Palm Oil 0 0 0 0 0
RBD PO & RBD PL 650,273 746,280 (45,379) (6.95) 1,311,814
Crude/RBD PS 19,114 18,893 221 0.69 40,230
Crude Degummed DSBO 408,858 488,301 (79,441) (16.27) 831,550
CSBO (from imported soybean) 222,619 230,635 (8,916) (3.48) 383,779
Coconut Oil 9,685 13,764 (4,079) (29.63) 21,025
Others 147,821 106,370 41,451 38.97 204,361
Total 1,458,370 1,604,243 (145,873) (9.09) 2,792,759

Source: MPOC Bangladesh

As a result of many restrictions caused by COVID-19, all educational institutions in Bangladesh have been closed since March 2020, which also contributed to the decline in the palm oil consumption to a great extent. Several million students of the educational institutions are a major segment of consumers of the products produced by the food processing industries. Due to continuous closing of educational institutions, demand of industrial processed foods has declined significantly. Inevitably, local food processing industries, who are one of the major consumers of RBD olein and vanaspati/shortening have been forced to run at a lower capacity resulting in a reduced consumption of both RBD olein and vanaspati/shortenings.

While Bangladesh edible oils imports remained rather stable and only experienced slight decrease, it has not been the same scenario for Malaysian palm oil (MPO) exports to the country. Up until June 2021, Malaysia exported less than 70,000 MT of palm oil to Bangladesh according to the official data released by MPOB. The volume represents an almost 70% decrease if compared to the same period of 2020. Palm oil demand has suffered tremendous blow in Bangladesh food sector and the same reason has directly impacted palm oil supplies including from Malaysia. In 2020, import scenario of MPO was different because MPO prices were more competitive as compared to Indonesian palm oil (IPO) especially in the months of Mar-May and Aug-Oct 2020. At present, MPO prices are reportedly no longer competitive and Indonesian companies are said to be able to offer an average of USD 15-20 per tonne discount to the Bangladeshi buyers in the last 2-3 months. These main factors continue to hinder palm oil intake into the local market and the impacts can be greatly seen for MPO.   

MPO Exports to Bangladesh by Type of Products (MT)
Jan-June 2020 Change
RBD Palm Olein 63,319 194,458 (131,139) (67.4)
RBD Palm Oil 331 9,029 (8,698) (96.3)
CO/DPL 197 2,521 (2,325) (92.2)
Crude Palm Olein 2,447 (2,447) (100.0)
RBD Palm Stearin 1,431 1,422 9 0.6
RBD Palm Olein for RSPO From Segregated 1,131 985 146 14.9
Others 1,108 1,728 (620) (35.9)
Total 67,517 212,590 (145,073) (68.2)

Source: MPOB

Forecast and Key Highlights for 2nd Half of 2021

In line with the impact of the global economic meltdown due to COVID-19, Bangladesh also experienced severe demand contraction in the local economy; this exacerbated the overall economic crisis of the country. COVID-19 has created tremendous negative impacts on the livelihood of the 30 million marginal population in Bangladesh. Many people working in the informal sector have lost their job and income due to the ongoing pandemic. Unemployment and poverty among the people in both urban and rural areas throughout the country have increased. As a result of the situation, demand of essential commodities is hovering at a minimum level. Domestic demands declined significantly due to the outbreak and subsequent lockdown, and, thus, producers, such as, food processing sector, a major consumer of palm oil in the country, responded by lowering the output to minimise the loss. Food processing sector of the country consumes about 400,000 MT of palm oil and shortenings/vanaspati annually.  

Additionally, other 3 major sectors, namely, general consumers, shortening & vanaspati manufactures as well as the HORECA sector, who are also leading consumers of palm oil in the country, have also been affected badly by the pandemic. All these major sectors together consume the entire quantity of palm oil imported into the country. General consumers hold the biggest market share at 50%, followed by shortening and Vanaspati industries with 30%, whilst the food processing industries and HORECA sector both hold an equal market share of 10% each.

Hence, prolonged shutdown of educational institutes, hotels, restaurant and eateries definitely pose a big blow for palm oil consumption. This has been proven by the declining trend of palm oil import since the start of 2020. Import of palm oil in 2020 declined by 5.1% compared to 2019, whereas during Jan – June 2021 period, import of palm oil declined by about 13.0% as compared to the corresponding period of 2020. If the COVID-19 situation in Bangladesh continues to worsen as can be seen in the last few months, palm oil imports will most likely to decline further for the second half of 2021.

Besides the negative impact of COVID-19, increased supply of soybean oil from local soybean crushing plants at comparatively cheaper price is also contributing greatly to the decline of palm oil consumption as cooking oil. Abundant supply of refined soybean oil from local seed crushing plants pushing the price of the same in the local market at much lower level compared to the oil processed from imported CDSBO. Lower income segment of the population, who consumes almost 50% of the total annual consumption of palm oil in the country, are switching over to soybean oil, because of its competitive price. It may be mentioned here that import of soybean is exempted from payment of 15% value added tax (VAT) and the crude soybean oil obtained locally by crushing of imported soybean is also exempted from payment of VAT, whereas import of CDSBO and all types of palm oil are subject to 15% VAT. Accordingly, CDSBO supplied from local soybean crushing plants is cheaper, which is now a big competitor of palm oil in the country.

In 2020, about 350,000 MT of palm oil has been replaced by refined soybean oil, which was supplied from the local soybean crushing plants. Considering the lucrative markup in soybean crushing business, entrepreneurs are coming forward in setting up large capacity soybean crushing plants, which is pushing the increased import of soybean in galloping trend. Presently, about 2 to 2.2 million tonnes of soybeans are being imported in the country annually, which is contributing to the availability of about 380,000 to 400,000 MT of crude soybean oil at a competitive price. On an average, import of soybeans has been growing at 10% rate which is also due to the increased demand of soymeal, which is used in the poultry, fish and cattle feed productions.    

Taking into account all the aforesaid factors, the second half of 2021 shall most likely see further decline in palm oil import into the country at a rate of between 8% to 10%. Hence, it can be projected that by the end of 2021, palm oil import may stand at 1.2 million MT which would be about 8% lower compared to 2020 and about 13% lower compared to 2019. As a price sensitive market, prices of commodities will continue to influence the purchase decisions, which also plays a crucial role in determining the import trend of palm oil which is also reflected since the beginning of 2021. Unless Malaysian companies can offer competitive prices to the Bangladeshi buyers, we might not see much changes in the volumes of palm oil intake from Malaysia as has been seen in 1st half of 2021.

Prepared by Fakhrul Alam and Azriyah Azian

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