International palm oil prices have stabilized, having hit record highs last year. Pakistan’s import unit cost for palm oil in December 2022 at $1,043/ton was the lowest in 21 months – having hit a high of $1646/ton six months ago. Import quantities have largely remained unchanged for 1HFY23 despite significant increase in retail prices. The jury is out on whether Pakistan is doling out precious foreign exchange to satiate the demand of neighboring Afghanistan for palm oil as well – in addition to pulses and wheat.

Only eggs have increased at a higher pace since July 2021 than palm oil, among all major food items. In the last six months, international palm oil prices in the spot market have come down by 40 percent, whereas retail prices have proven much stickier, shedding only 3 percent. There is good reason for that, as imports in dollar terms may only have increased 13 percent year-on-year in 1HFY23 – that in rupee terms shot up by 75 percent.

The gulf between retail and international prices has never been wider than today. Rebased to July 2021 – palm oil prices have gone up by 69 percent versus a drop of 8 percent in spot prices. Increased distribution costs (190% increase in diesel and petrol prices) and rupee dollar parity appear the main culprits.

The palm oil benchmark Malaysian contracts have slipped in the last six weeks, on the back of weak export data. That said, a bull rally could just be around the corner given record-low month end stocks reported by Malaysia. The Malaysian Palm Oil Board data shows widespread production losses due to devastating floods earlier in the year, that should keep prices honest in the next few months.

Palm oil alternatives continue to be in the news, but lab alternatives have so far been restricted to just labs – with any significant scalable production out of sight in the near future. Ukraine’s war continues to put pressure on sunflower seeds production – that plays in favor of palm oil prices. Indonesia’sexport restrictions are still very much in play, that should help palm oil prices recover from the recent lows.

For Pakistan, there is no respite, both in terms of import payments and retail prices. With the peak demand Ramadan season approaching, expect inventories to pile up, regardless of price trajectory or import restrictions. Any move towards market-based dollar rate (which is fast becoming likely) should also add to prices in stores, even if imported unit values stabilize.