Upcoming Challenges for Palm Oil and MPO in Bangladesh Market

Market Overview:

Bangladesh is a lower-middle income category country with a 170 million population size. Steady economic progress achieved during the last couple of years has contributed greatly in generating a life style change of a major population segment. ADB’s report shows that Bangladesh is growing richer at a faster rate than its neighboring countries. Its per capita GDP growth overtook India’s in 2017 when it clicked 6% growth rate compared to India’s 5.8%. It continued to grow faster in 2020 too – at 6.6%, compared to big neighbor India’s 5.9%. Steady economic growth caused rapid urbanization and brought changes in traditional food habits. People are more keen to eat in hotels, restaurants, fast food chain, eateries and consume industrially processed foods much more than before compared to homemade foods.

This trend has contributed greatly in increased consumption of oils and fats. Per capita consumption of oils and fats is now approaching 19 kgs. Annually, the country consumes about 3 million tonnes of oils and fats. Bangladesh can meet hardly 10 – 12% of its annual requirement of oils and fats by indigenously produced oilseeds. Because of limited agricultural land availability, the possibility of increasing indigenous production of oilseeds is almost nil. Thus, Bangladesh will continue to be an oils and fats importing country. Import size would grow in pace with increased consumption, which makes the country a potential destination for MPO.

Expected Import trend of Palm Oil: July – Dec., 2020

Beginning from July 2020, the import trend of total oils and fats in the country began a decline compared to the Jan-June 2020 figures. Import growth rate of palm oil (RBD PO and RBD Olein) at the end of July 2020 declined to only 0.50%, which was about 8% till end of June 2020. Volume wise import quantity of palm oil (RBD PO and RBD Olein, which constitutes about 96% of total import of palm oil and palm oil products) at the end of July 2020 was 822,190 tonnes against 746,280 tonnes at the end of June 2020.

In July 2020, total import of oils and fats was 218,933 tonnes, which saw a noticeable decline by 12.24% compared to July 2019 and 5.5% compared to June 2020. Decline of import of palm oil is one of the major causes of such trend.  Growth rate of import of total oils and fats also came down to only 2.43% at the end of July 2020 from about 5% at the end of June 2002. Import scenario of August won’t be different from July, 2020, whereas July to Sept. is peak consumption vis-a-vis import period of palm oil in the country due to conducive weather for palm oil marketing. Expected import quantity of palm oil during July – Dec., period of 2020 may hardly reach to 400,000 tonnes against 746,348 tonnes during Jan. – June 2020, which could be translated that import of palm oil during July. – Dec. period of 2020 may witness a decline by about 46% compared to Jan. – June 2020. Significant decline of consumption of palm oil due to COVID – 19 is only the reason of such decline. Detail on the same has been described later part of this article.  

Expected Performance of Export of MPO: July – Dec., 2020

After May, 2020, in August 2020, MPO price again came to a competitive level compared to IPO for a while and two consignments totaling 22,000 tonnes of MPO were bought by a local importer for Sept. shipment. Prevailing price difference between MPO and IPO is about US$ 5 per tonne at C & F level. But this US$ 5 per MT makes a huge difference to the tune of US$ 100,000 at C & F level in a consignment of 20,000 tonnes. Difference at landed price is further 20% more because of Value Added Tax and applicable other duty. Since Bangladesh is a price sensitive market price influences all the purchase decisions.

Export of MPO during July – Dec. period of 2020 may be much lower compared to Jan. – June 2020 period because of comparatively higher price of MPO compared to IPO. Presently, suppliers are offering IPO at an average discount to the tune of about US$ 5 per tonne at C & F level compared to MPO. A projection on import of MPO for July – Dec. period of 2020 is given in the Table – 2 assuming the prevailing fundamentals would stay for the remainder of the year.

Table: 2: Expected Import of MPO in July – Dec. VS Actual Import of MPO in Jan. – June, 2020

Commodity July – Dec., 2020 Jan.  – June, 2020 Change (+/-) In MT Change (+/-) in %
MPO 40,000 208,455 (168,466) (-) 80.82

Source: MPOC Market Intelligence

Note: MPO refers to CPO/CPL/RBD PO and RBD PL

Analysis of the Prevailing Situation of Palm Oil Market in Bangladesh:

As per market sources, trading volume of oils and fats, especially refined olein, have fallen drastically in the local market since the outbreak of COVID – 19 in the country which hit around March 2020 onwards. The aforesaid trend in import of palm oil is still continuing and may not improve until the country’s HORECA sector and Industrial Food Processing sector starts functioning at nearly pre COVID-19 levels.

Because of imposition of MCO due to the pandemic, about 600,000 outlets under HORECA sector, which comprises hotels, restaurants, fast food chain stores and street food vendors/eateries scattered throughout the country, were closed since end of March 2020.

MCO also affected the processed food industries, which are operating at much lower capacity compared to pre- pandemic levels. From April 2020, the demand for industrially processed food items, such as fried food, biscuits, chips, chocolate, instant noodles and confectionery items have started to decline as the schools and educational institutes were shut down from March 2020. Millions of students constitute a major segment of consumers of said processed foods. Shut down of educational institutes have almost wiped out the demand for said items forcing the industry to go on the back foot.

Massive business slowdown of palm oil consuming sectors meant refined olein and Vanaspati demand also dimmed. These two sectors together consume about 750,000 to 800,000 tonnes of palm oil annually, which is almost 50% of total annual import of palm oil in the country. Of the quantity, 400,000 to 450,000 tonnes is consumed in the form of vanaspati and the rest 300,000 to 350,000 tonnes as liquid oil.

The MCO has started to ease from early August, 2020. Hotels, restaurants, fast food chain stores and street food vendors/eateries have started to reopen gradually and it was expected that the consumption vis-a-vis import of refined olein would also gain momentum with the ease of MCO. But the HORECA sector is still not functioning at pre -COVID level because people are still anxious about eating outside their homes. Social gathering, which is generally followed by large scale feasts are yet to restart.

Educational institutes are supposed to re-open starting from Sept. 01, 2020, but now the decision has changed and re-opening of schools/colleges/universities is pushed back to September or later. Presently all the aforesaid issues are contributing together in significant decline of import of palm oil.  

Performance of Total Oils and Fats vis-à-vis Palm Oil: Jan – June 2020:

Despite the outbreak of COVID – 19 pandemic, import performance of palm oil till June, 2020 was healthier compared to the corresponding period of 2019, while import of palm oil’s main competitor CDSBO witnessed a major setback. During Jan. – June, 2020 period import of RBD PL, the main category of palm oil being imported in the country, witnessed an increase by about 8 folds, whereas import of CDSBO declined by 12% compared to corresponding period of 2020. Import quantity of major 3 edible oils during Jan. – June 2020 may be seen at Table – 3 furnished hereunder.

Table 3: Import Quantity of Major 3 Edible Oil: (MT)

TYPE OF PRODUCTS Jan-June 2020 Jan-June 2019 Diff (Vol) Diff (%)
Palm Oil 746,280 691,905 54,375 7.86
CDSBO 488,301 557,325 (69,024) (12.38)
Rapeseed/Canola 94,991 31,725 63,266 199.42
Other 274,671 249,448 25,225 10.11
Total: 1,604,243 1,530,403 73,840 4.82

Source: MPOC Market Intelligence

Note:

  1. Palm oil refers to CPO/CPL/RBD PO and RBD Olein
  2. Rapeseed/Canola oil figures are oil equivalent of imported seed @ 38% extraction rate.
  3. Other refers to Palm Stearin, PKO, Palm based fats, coconut oil, refined veg. oil and oil equivalent of imported soyabean @ 18% oil extraction rate.    

Performance of MPO: Jan. – June 2020

MPOB data shows, export of MPO and MPO products during Jan. – June period of 2020 to Bangladesh witnessed a staggering growth by about 5 folds compared to the corresponding period of 2019. Import of RBD Olein, the main category of palm being imported in Bangladesh was over 9-fold higher compared to corresponding period of 2019. Detail on the same may be seen in the Table – 4. 

Table 4: MPO Exports to Bangladesh by Type of Products (MT)

TYPE OF PRODUCTS Jan-June 2020 Jan-June 2019 Diff (Vol) Diff (%)
RBD PL 194,458 18,555 1765,903 948.00
RBD PO 9,029 420 8,609 2049.76
COOKING OIL 2,521 3,825 (1,304) (47.42)
CPL 2,447 2,750 (303) (11.02)
RBD PS 1,422 36 1,386 3,850
PFAD 453 1,142 (689) (60.33)
PKO & PKO PRODUCTS 2,937 4,958 (2,021) (40.76)
OTHER 3,180 3,541 361 10.19
TOTAL 216,447 35,227 181,220 514.43

   Source: MPOB

Conclusion:

Considering the facts discussed above, it could be presumed that import of total oils and fats and palm oil as well likely to witness a noticeable fall in the 2nd half of 2020 compared to the first half of 2020. Palm oil may be the worst suffers of the situation caused from COVID – 19 due to its lion share in the country’s total import vis-à-vis consumption of oils and fats. Besides, lean period for marketing of palm oil in the country would start from November due to cold weather and naturally import trend of palm oil would decline further from November, 2020. Accordingly, annual import quantity of palm oil in Bangladesh during Jan. Dec., 2020 may experience a substantial decline to the tune of about 23% compared to Jan. – Dec., 2019, detail of which may be seen in Table – 5 furnished hereunder.   

Table: 5: Import of Palm Oil: Jan.- Dec. 2019 Vs Jan. – Dec. 2020

Commodity Jan. – Dec., 2020 Jan.-Dec. 2019 Change (+/-) In MT Change (+/-) in %
Palm Oil 1,150,000 1,488,500 (338,500) (-) 22.74

Source: MPOC market Intelligence

Note: Palm oil refers to CPO/CPL/RBD PO and RBD PL

Despite the expected decline in import of MPO (RBD PO and RBD Olein together) during July – Dec., 2020 period, annual import quantity of MPO at the end of 2020 expected to reach 250,000 tonnes, which will be about 138% higher compared to 2019. However, only a sudden positive change of the price trend of MPO discussed in earlier part of the article may contributes to a positive improvement in the scenario.

Prepared by Fakhrul Alam

*Disclaimer: This document has been prepared based on information from sources believed to be reliable but we do not make any representations as to its accuracy. This document is for information only and opinion expressed may be subject to change without notice and we will not accept any responsibility and shall not be held responsible for any loss or damage arising from or in respect of any use or misuse or reliance on the contents. We reserve our right to delete or edit any information on this site at any time at our absolute discretion without giving any prior notice.

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