Saturday, July 23, 2011

Cooking Oil Price Intrigue Continues

There is still uncertainty and speculation about whether the major cooking oil producers will raise retail prices of their products.

According to a July 22 article in the Southern Metropolitan Daily, an edible oil company executive said that the two leading companies have requested permission to raise prices by 5% and have received tacit approval from the National Development and Reform Commission. However, the companies have still not announced anything and discount this news as rumors.

The rumored price increase would be for the two leading edible oil brands, Jinlongyu, sold by Yihai Kerry (Wilmar), and Fulinmen, sold by COFCO. Leading peanut oil producer, Luhua, "tested the waters" by announcing a price increase earlier but retracted it shortly thereafter.

An Yihai Kerry official said, "We haven’t applied for a price increase, and have no plan to increase prices.” A COFCO official said the report of a planned price hike is "false news."

The year-on-year CPI increase for June was 6.4%, above the government's target. So NDRC is apparently hesitant to let companies raise prices. (The CPI for food was up 14%, meat was up 32%, eggs 22%, and fish 13%; clothing was up only 2% despite soaring cotton prices.)

According to a Qilu securities report issued July 10, companies lose 186 yuan on every metric ton of soybeans they process into cooking oil. Many companies are reported to be cutting back production or shutting down. Daily consumption of imported soybeans is said to be about 25% lower than last November. With cut-backs in consumption, soybeans are piling up at ports.

At a Carrefour supermarket in Guangzhou, no promotions are being offered for rapeseed oil, soy oil and salad oil (usually companies offer some extra doo-dads taped on to the oil bottles as promotional gimmicks). Only high-end oils sunflower, canola, and olive oil were offering promotions.

There was not much peanut oil on the shelves and Luhua brand peanut oil was completely sold out. The supermarket manager explained that deliveries have stopped. When asked whether prices will be raised, the Carrefour manager said, “No notice received yet.”

Apparently, the big companies have received instructions from the government to keep selling their product. The Yihai Kerry official emphasized that the company had maintained its nationwide supply since the informal price controls were imposed despite increases in raw material prices. The company faces a lot of pressure, but it is adhering to its "social responsibility" by maintaining supply.

But maybe the companies are telling NDRC they can't keep this up any longer. A July 21 article in Daily Business News reports that Beijing supermarkets have stopped receiving shipments of Jinlongyu and Fulinmen oils over the past two weeks. Their inventories are dropping. This article reports that Yihai Kerry and COFCO demanded that the NDRC let them have a price increase similar to what Luhua requested.

Beijing supermarket managers have been given verbal confirmation that prices will be increased, but the oil producers still deny any plans to raise prices.

1 comment:

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