When it rains, it pours. If you are a commodity, war is going to get you if Covid didn’t. While the focus remains on what happens in energy markets, as Russia braces for impact of sanctions, the edible oil has quietly rallied to the highest ever, outpacing crude oil rally. And it is a big worry for Pakistan, as nearly 40 percent of food imports comprise of palm oil.

Palm oil futures as traded on the Malaysian Commodity Exchange, hit a peak of 8,000 Malaysian Ringgit/ton – doubling in less than a year. Leading producers, Malaysia and Indonesia, continue to observe production slowdowns for various reasons. The stocks with top oil consuming countries have also dwindled, with India, China, and Pakistan, all reporting multi-month low palm oil stockpile. Skyrocketing prices have not led to a meaningful decline in palm oil demand. Not just yet.

In ordinary times, a bull rally of such magnitude would definitely lead to some demand compression. But times are anything, but ordinary. As trade routes from the Black Sea region get disrupted, the impact has been felt across all forms of edible oil. Recall that the Black Sea region accounts for 75 percent of global sunflower oil exports and 60 percent of all production. Sunflower oil exporters have halted supply, leading to increased pressure on palm oil demand. To make matters worse, Indonesian authorities have announced export curbs on palm oil in the wake of rising prices, in a bid to stabilize domestic retail market price.

With the holy month of Ramadan approaching, demand from India and Pakistan is likely to see another spike. Combined, India and Pakistan account for more than one-third of global palm oil imports.

Pakistan’s inventory of palm oil, as tracked by the Malaysian Palm Oil Council was lower by a third by the end of February, signaling more stocking is in order in preparation of the holy month. Although, there is rising incentive for smuggled Iranian palm oil to make significant inroads in the Pakistani market, nothing suggests it is poised to make a big dent on the overall quantum of formal imports. Pakistan’s palm oil import bill could well exceed $3 billion for FY22, even if prices were to stabilize from here on.