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Palm oil prices soar as importers face currency issues

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Palm oil prices soar as importers face currency issues

Amidst the Central Bank of Nigeria (CBN) foreign exchange policy placed on the 41 restriction items list, there are indications that Nigeria’s palm oil sector is facing turbulent challenges as currency restrictions on importers raised domestic crude palm oil prices in the marketplace, a securities firm, ARM Securities, has revealed.

According to the firm, many of the importers of palm oil are groaning over the apex bank’s foreign exchange policy that included crude palm oil (CPO) among the items restricted from being imported into the country to enable Nigerians patronage for local ones.

“In contrast to the macro-induced sell-offs across the broad equities market in 2016, palm oil producers had a stellar year as the policy changes in response to the foreign exchange pressures handed the sector a lifeline,” ARM said.

“As importers struggle to source the currency needed to pay for supplies, local producers have enjoyed rising sales volumes and prices, despite a generally “dour” economic outlook in Nigeria.”

Indeed, the country has struggled with a shortage of foreign currency in the wake of the oil price collapse but that is changing currently due to the marginal increase in price of crude oil at the global market, which is boosting the foreign reserve.

Obviously, the CBN attempted to control foreign currency outflows, by restricting the importers of selected goods and commodities, including crude palm oil (CPO), from access to the foreign exchange market.

“Given the inclusion of CPO in the list of banned items, the wider naira depreciation at the parallel market and, to a lesser extent, recovery in global CPO prices deterred importers as cost of imports surged 73 per cent year-on-year by our estimates,” ARM said.

The firm said that restrictions on access to foreign currency “changed sector dynamics,” providing a “competitive edge” for local producers over importers.

“Given the mismatch between domestic CPO production and consumption, the pullback in CPO imports as importation costs tracked higher underpinned a steep rise in domestic CPO prices over 2016,” ARM said.

“In the aftermath of CBN policy pronouncement regarding CPO imports, domestic prices surged 144 per cent over 2016 to N661.4 per kilogramme, as importers who account for 29 per cent of local supply cutback on imports,” ARM said.

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