Record High Seen in Refined Soybean Oil – Prices nearly double versus March lows

Soya oil attains record highs after March Lows: The trend was bearish till third week of March 2020 due to the Corona pandemic and oil prices began moving upwards just after the lockdown announcement, since supply disruption situation emerged resulting in temporary supply constraints. India’s Edible Oils Inventories till end of August 2020 were running nearly 16% lower than August 2019 and were almost unchanged in comparison to the previous month. Vegetable oil inventory in the country had reached historic lows after March as imported halted altogether when India had announced a complete lockdown. Domestic demand started improving slowly as the lockdown restrictions eased, and trade between state/country borders resumed. As a result, consumption of edible oils improved significantly. 

Trade estimates indicate that the June-end inventory of vegetable oils was roughly 25% lower than the same period last year. The supply pipeline was quite empty during this period and needed to be replenished quickly as domestic demand increased post lifting of lockdown restrictions. The year observed Soya oil posting new highs as global cues were consistently bullish after June month. Since soya oil is an import oriented commodity, lower estimates of global edible oil supplies as well as end stocks consistently favored upward price action in the commodity and the trend remained bullish till year end. 

Refined Soya oil at Indore market ended the 2020 trading session with a record high around1200 level. Prices have nearly doubled when compared with the March lows.

Soya oil Prices Can Trend Upwards during Early Part of Next Year: The overall outlook for Global Soya Oil is bullish due to increase in consumption estimates followed by reduced estimate for world’s end stocks.  The USDA in its December report has projected 2020-21 world consumption at 59.48 MMT versus previous year’s 56.68 MMT. Likewise global ending inventory has been projected at 4.81 MMT as against 4.84 MMT in 2019-2020. On the other hand India’s Soya oil ending inventory for 2020-21 is projected lower at 0.10 MMT from last year’s inventory of 0.15 MMT.

Tightening soybean oil supplies on the domestic/global front can result in further price appreciation moving forward. Analysts expect bullish trend in crude oil for the next quarter at least while the Indian rupee is unlikely to improve much against the dollar. Therefore depreciating domestic currency over the dollar will be another bullish factor for soya oil, in addition to strength in crude oil. In light of above mentioned factors, we expect the bullish trend to continue in soya oil for the  first half of 2021 and depending on government’s stand over further import duty cuts, other import related policies, existing domestic supply-demand factors, markets will seek fresh direction towards second half of 2021.