These stocks are expected to suffer due to higher palm oil prices

New Delhi: Indonesia’s palm oil export ban will hit India the hardest, which is the world’s largest importer of vegetable oils. Even a number of stocks will feel the heat from vegetable oil prices.

Rising inflation has been a major issue for the FMCG, consumer and QSR sectors, which have raised prices to absorb the impact. But another price hike could be a major challenge for businesses.

Palm oil is the most widely used vegetable oil in the world, accounting for around 40% of the supply of the four major edible oils. Global palm oil production fell in 2020 and 2021 due to a drop in migrant labor on plantations in Southeast Asia.

“Palm oil is the relatively cheaper oil among other edible oils. This move is expected to cause further increase in prices of other edible oils such as soybean oil, sunflower oil,” said Prabhudas Lilladher in his report.

Market experts believe that the shortage of edible oils will impact FMCG segments such as cookies, cakes, soaps and shampoos, where it is a major input. The FMCG industry may experience margin compression due to rising prices.

VK Vijayakumar, chief investment strategist at Geojit Financial Services, said that

Godrej Consumer, and are likely to be impacted by rising input costs.

Businesses might be able to pass most of the higher costs on to consumers, but full load shifting could reduce volumes, he added. “The FMCG sector is already struggling due to the rising cost of packaging, thanks to boiling crude oil.”

Being the largest importer, India relies heavily on Asian countries like Indonesia and Malaysia to meet its demand for 8 million tonnes of palm oil per year.

The war in Ukraine has led to a major shortfall in the supply of cooking oil around the world, leading to record prices for palm and soybean oils. Malaysia’s export ban and increased taxes will further aggravate the problem.

Echoing similar views, Santosh Meena, Head of Research,

said this turmoil will negatively affect FMCG companies like HUL, Britannia, Godrej Consumer Products, among others.

“The high prices will leave packaged food manufacturers, soap makers and other personal care manufacturers no choice but to raise prices and thereby affect their volumes,” he added.

Taking a step ahead, Prabhudas Lilladher said that palm oil is a key ingredient in the major food processing industry and QSRs, which impacts their costs and margins.

We believe the impact would be most visible in categories such as cookies, noodles, cakes, chips, frozen desserts,” he added.

Development and Burger King may also feel the pinch considering the use of edible oil to cook/fry their patties/fries.”

The financial company has a buy rating on QSR companies like Westlife Development and

. He suggested accumulating FoodWorks at current levels.

“This new ban would likely keep prices firm higher in the near term until the ban is reversed and global commodity prices stabilize,” the financial firm said in its report.

(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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Felix J. Dixon