How Adani got RICH after Palm Oil crisis ? : Edible Oil crisis Case study thumbnail

How Adani got RICH after Palm Oil crisis ? : Edible Oil crisis Case study

Indonesia's palm oil export ban in april is the latest in the series of shocks to the global food supply chain global prices of crude palm oil which indonesia uses for cooking oil have surged to historic highs this year the droughts and the war in ukraine have made cooking oil supplies dry up around the globe leading indonesia to take.

Drastic steps to protect its own consumers a shock move by the world's largest palm oil producer that could further inflame global food inflation hi everybody on 20th of april 2022 indonesia which is the world's largest consumer producer and exporter of palm.

Oil banned the export of palm oil and its raw materials and as soon as this news came out it had a drastic impact on the fmcg stocks of india in fact even frontline stocks like hindustan unilever britannia industries gold rich consumer products in marico all of them were down between four to six percent but you know what during the exact same time it so.

Happened that adani wilmer's stock shot up by five percent to hit an all-time high of 802.8 rupees and ruchi soya zoomed by eight percent and this fluctuation in the stock market has a very deep rooted story that very few people understand and more importantly it's got a very important lesson in business geopolitics and stock market.

That very few retail investors actually study so if you want to be a wise investor let's try to understand what was the deal with the global oil industry how does the geopolitics directly affect these stocks in india and most importantly as investors what are the study materials to help you understand these critical business.

Insights that can make you a smarter investor let's start from the basics and try to understand how does the global oil market function to put that straight there are four important types of oil that are widely used across the world palm oil soya bean oil canal oil and.

Sunflower oil out of all of them palm oil makes up 40 of the global supply in fact palm oil is the world's most widely used vegetable oil with its global production in 2020 alone being over 73 million tons but if you look at the suppliers of palm oil you will see that there are only two edible oil giants indonesia and malaysia.

Indonesia is the largest exporter of palm oil with 60 market share and malaysia is responsible for 30 percent of the global supply together just two of these countries account for 90 of the entire world's palm oil supply and guess what india is the biggest importer of palm oil with per mile alone being 60 percent of our entire vegetable oil.

Inputs now the question over here is where is all this palm oil being used because as far as we know it's just used in the kitchens and that too very rarely right well not really as it turns out more than 50 of the products in an average indian's house contains palm oil products.

And this includes cosmetics processed foods cakes chocolates soaps shampoos cleaning products and even biofuel and subsequently the companies that need palm oil are none other than your colgate oreo maggie kitkat and dove so palm oil is extremely important for the fmcg sector of india so now the question over here is there is crisis in pakistan.

Sri lanka ukraine but what about indonesia there is no conflict or crisis going on in indonesia right so why have they banned their palm oil export well here's where you need to understand the ripple effect caused in the global economy because of one major event military operation is now underway in eastern ukraine ukraine has declared.

A state of emergency the full scare invasion that intelligence officials had been warning about for weeks is now underway and there are reports of explosions and attacks at several major ukrainian cities so the question is how is this russian invasion of ukraine actually affecting the oil industry of the world.

Well let's have a look at each one of these oils properly and you'll clearly understand what exactly is happening let's start with the first type of oil which is sunflower as it turns out ukraine is the largest exporter of sunflower oil in the world with 46 of the global sunflower seed and safflower oil production and the second largest.

Producer is none other than russia which exports 23 percent of the world's supply together russia and ukraine export hundred lakh tons of crude sunflower oil which is close to 70 percent of the entire world supply but as soon as russia's invasion of ukraine happened the ukraine exports have been dented and because of all the.

Sanctions and hurdles imposed by the west on russia even the russian sunflower oil exports also got delayed so sunflower oil which is the second most used oil in the world and one of the closest replacements of palm was no longer available in enough quantities then we move on to soybean oil the major producer of soybean is none other than.

Argentina and even there because of bad weather the crops were affected and they had a poor harvesting season similarly the production of canal oil was hit in canada last year due to drought so practically three out of the four most used edible oils in the world have supply shortages so even the question of replacing one with the other was out of.

The window which means what the only oil the industries all around the world were banking on was palm oil and as we saw before only two nations account for 90 percent of the entire world's palm oil supply and here's where things got worse malaysia which is the second largest producer of palm oil was facing a co-weight induced labor shortages.

And labor in case of the palm oil industry is extremely important because palm oil harvesting is largely a manual process because the palm trees are extremely tall so these workers have to either climb the tree or they have to carry long pores with sickles to harvest palm but as soon as kovid happened these.

Labors went back to their homeland in india bangladesh and pakistan as a result even indonesia's market could not cater to this demand which means the entire global demand fell upon the shoulders of just one country which was indonesia now the question over here is this is such an amazing opportunity for.

Indonesia right the global demand is at its peak the alternative oils are not available in enough quantities and indonesia practically is a monopoly so they can practically command any price that they want right in fact indonesia already exported 60 percent of its oil then now why did they suddenly ban their own exports well long.

Story short indonesia used a large amount of its palm oil into producing something called biodiesel which is nothing but another type of biofuel in 2020 reuters reported that it used over 7 million tons of palm oil out of its total national output of 41.4 million tons secondly the distribution line of this.

Industry is completely unorganized which further led to a lot of chaos now i don't know how many of you know the geography of indonesia but then indonesia looks something like this it's a cluster of 17 000 scattered islands and 6 000 of them inhabited many palm oil plants are grown in this region called the java and kalimantan and both.

These islands lack distribution links to the domestic market while the local market is scattered over java and sumatra 50 of the country's consumption is in java and another island called bali and lastly because the export prices started rising people stopped supplying to domestic vendors and started exporting all the palm oil that.

They had as a result the price of palmel in the domestic market of indonesia shot up and this price became so high that it went from 14 000 rupiah to 25 000 rupiah per liter and because of this the domestic industries in indonesia started facing trouble it's like dubai's petrol prices are increasing because they're exporting.

So much oil that they themselves are falling short of petrol so finally the indonesian government imposed the ban on the export of palm oil this is how in spite of having the golden opportunity to dominate the world trade indonesia had to pass on this opportunity and impose a ban and this brings me to the next question and that.

Is how does this ban affect the indian industries and indian stocks well like i said before india is the largest importer of palm oil in the world out of which 45 of it comes from indonesia and the remaining comes from malaysia and because both these regions could not cater to the extreme demand of palm oil it had a drastic impact on the indian.

Industries and it's not just palm oil but even the price of soybean rose by 29 and sunflower oil which was supposed to come from russia and ukraine spiked by 90 and like we discussed before palm oil is an integral part of the fmcg sector for everything from soaps to shampoos to biscuits to even toothpaste.

And you know what palm oil and its derivatives nearly account for more than 20 percent of the input cost of these consumer products so if your soap cost 10 rupees to make palm oil alone cost 2 rupees so any price fluctuation in palm oil will directly squeeze the margins of the companies eventually leading to price hikes this is a reason why if you.

Saw the news the prices of soaps increased by nearly 26 percent while shampoos and hair dyes increased by eight to nine percent so if you see it was directly affecting the balance sheet of companies like hul nestle and mariko and right enough we saw the steep drop in the stock price between four to six percent each but now the question over.

Here is when these stocks were falling what could be the reason for adani wilmer's stock rise well if you read the news closely you will see that there are four sub types of palm oil refined bleached deodorized and crude palm oil and the catch of the matter over here is that indonesia banned all three types of palm oil exports except crude palm oil.

Which means instead of refined palm oil we will get only crude palm oil which then have to be refined in india so obviously the indian refinery companies became a beneficiary of the ban in indonesia wherein they had an insane demand to process all the crude oil that was coming from indonesia as a result if you.

See edible oil refinery stocks like adani vilmur puna dal and oil industries and ruchi soya shorter by 5 to 10 within this short span this is how geopolitics business and stock market work in conjunction with each other with one affecting the other two in both good and bad ways and as an investor we have to keep studying these.

Intricacies and geopolitics of the market by which soon enough we'll be able to understand their impact on the indian stocks and then we'll be able to pick the right stock at the right time and this brings me to the most important part of the episode and those are the factors that we need to keep an eye on to understand the edible oil market of.

The world and more importantly their impact on the indian stock market meanwhile if you're someone who does not have the time to do such detail analysis of every single stock in your portfolio then you can make your investments through small case in this case you could make your investment directly into the fmcg tracker small case small case.

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Updates about the most important happenings in the market so if you love the idea download the small case app from the link in the description moving on the first thing we need to keep an eye on is the geopolitical scenario of the world that will further go on to affect the edible oil industry of the world for example argentina is.

Facing a record high inflation of 55.1 percent from just one year ago so if the economy of argentina collapses it will directly affect the soybean value chain similarly like we saw when russia ukraine case happened sunflower oil supply got cut off so keep an eye on the value chain of these oils so that you can understand what is their impact on.

Those companies so right now geopolitics is one of the most important factor that you're supposed to consider while you invest your money into the stock market secondly if there is any ban on an important commodity keep a very close eye on its value chin because like i said before in the world of business one man's downfall is another man's.

Opportunity in this case while fmcg companies got affected in a negative way oil refinery companies actually benefited from the ban in indonesia and by the way if you understand this a homework would be to actually study the wheat ban and how it's going to affect the value chain of different companies in india and abroad.

And lastly if you look at the edible oil industry problem it's not something that's new to india in fact according to jeffrey's brokerage the palm oil prices have risen by nearly 50 in the past one year and they have tripled in the past two years and one of the industries that this big spike is going to affect is the five.

Thousand crore num cane industry in gujarat in fact it has already dented their profits by 30 and like we saw this is because we are extremely dependent on imports and that too from just two nations for something as important as palm oil so now india is trying to build up its own palm oil cultivation and other steps are being.

Taken to de-risk these industries from the risky dependence of palm oil on these two nations which are indonesia and malaysia so do read about what the government is doing to actually de-risk itself and its industries for which i'll attach a link in the description that's all from my side for today guys if you learned something valuable please make.

Sure that the like button or not make youtube baba happy and for more such insightful business and political case studies please subscribe to our channel thank you so much for watching i will see you in the next one bye bye bye

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