ICOA – COVID-19 UPDATE BULLETIN – Dated June 8, 2020

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ICOA – COVID-19 UPDATE BULLETIN – Dated June 8, 2020

(by, Shailesh Baldha, Adani Wilmar Limited) 

 

Current Situation due to Covid-19 in India:

After having passed through a series of lockdowns from numbers one to four, the Government of India has declared a new series of Unlock One as the first step in the easing of lockdown norms. The Unlock series of re-opening will focus more on economic activities, whereas the alock series prioritized health over economy.

As declared by the Ministry of Home Affairs, Government of India on 30th May 2020, the lockdown will be extended in the containment zones until June 30 and, only essential services will be allowed.  A strict perimeter control to ensure that there is no movement of people in or out of these zones will be maintained.

However, the home ministry has also removed all restrictions on intra-state and inter-state movement of people. The night curfew will continue to remain in force from 9 pm to 5 am. All activities that will be opened up in areas outside containment zones in a phased manner.

  • Phase I, religious places, hotels, restaurants, other hospitality services, and shopping malls will be permitted to openfrom June 8.
  • Phase II, schools, colleges, educational/training/coaching institutionetc, will be openedafter consultations with States and Union Territories (UT).
  • Phase III, International air travel of passengers, operation of metro rail, cinema halls, gymnasiums, swimming pools, entertainment parks, theatres, bars and auditoriums, assembly halls and similar places; social, political, sports, entertainment, academic, cultural, religious functions, and other large congregations.

Dates for the opening of the above activities will be decided based on an assessment of the situation.  States may prohibit certain activities outside the containment zones, or impose restrictions as deemed necessary.

Total number of confirmed Covid-19 cases in India is 246,628, out of which 119,293 are recovered and 6,929 deceased in all of India. Daily new cases have almost reached the 10k mark.

Gujarat has total 19,592 confirmed cases with 13,316 recovered cases and 1,219 deaths.

The daily numbers are still increasing and have not yet peaked. The numbers may increase further in near term due to recent unlocking.

Most factories in non-containment zones have resumed operations a few weeks back. However, there are workforce issues that have surfaced in the past 3-4 weeks as the Government had supported reverse migration of labours to their hometowns.  As per the labour and employment department of Gujarat government, 1,017 special trains were operated from May 2 to May 31 ferrying 1.52 million migrant workers to their home states from Gujarat.  However, there are still many who have been left out of the reverse migration and wish to return to their hometown. The daily wages have increased due to lack of availability of workers.  The container transport movements has also been severely affected as most drivers have returned to their hometown.  The port operation efficiency has also gone down due to reverse migration of workers.

It may take a longer time for this workforce to return back to their work place and hence the production and supply chain situation may remain tighter and uncertain for the time being.  We will need to keep a close watch on the situation.

Castor seed supply situation :

The availability of castor seed during 2020 may be around 2.2 mmt as compared to consumption requirement of around 1.5 mmt.

Castor seed harvesting is already over and the farmers are preparing land for the next sowing.  Many of the farmers had moved the stocks to their homes as the market yards were closed during harvest period.  Due to lower prices, these farmers are not in a hurry to sell their produce.  They prefer to retain castor seeds and sell off high priced commodities.  It was even heard that a few farmers sold high priced commodities in market yards and bought castor seeds in return for stocks due to attractive prices of castor seeds.

Castor seed arrivals have stabilized at around 120k bags daily.  However, parts of the arrivals are going directly into stocks as the prices are attractive for stockists.  The bigger speculators/stockists are absent this year as they have burnt their fingers during previous years.  However, small traders/stockists/farmers are very active and are in big numbers.

The IMD and several other weather agencies have predicted normal and timely monsoon across the country.  The water availability has also remained good this year which may prompt farmers for early sowing.  Good and timely monsoon may prompt farmers to opt for more cash crops as compared to castor.  Lower prevailing prices of castor as compared to other competing crops may also lead to lower interest for castor sowing by farmers this year.  The Government of India has recently declared an increased MSP for various crops and castor is not a part of it, as usual.  This is also an unfavourable factor for castor sowing.

As a part of Agriculture reform process, the Government of India recently approved the Farming Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020, that will ensure barrier-free trade in agriculture produce.  The ordinance will provide freedom to farmers to sell their crop to anyone, unlike the erstwhile setup where they could only make sales to licensed traders in the APMC (Agricultural Produce Market Committee) near them.

Castor Oil Demand :

Total exports of castor oil from India during 2019 was 545kt.  Consumption of castor oil in the domestic market and for castor derivatives production combined was approximately 200 kt.  So the total consumption of castor oil during 2020 was around 750 kt which equals to 1.6 mmt of castor seeds.

Castor oil exports from India during January to May 2020 is around 209 kt compared to 218 kt during the same period last year.  The decline in consumption during corona regime is not reflected in castor oil exports from India, as export numbers do not reflect real time consumption pattern.

Inventory level was at its lowest ever throughout the pipeline during the Janary-March quarter, as the industry was expecting a bumper crop of over 2 mmt.  Sudden appearance of Covid-19 followed by a series of lockdowns during March-April in India resulted in a hinderance in production and supply chain.  This resulted in a dry out situation at destination and temporary price spike.  The higher exports of almost 55kt during May 2020 was an outcome.  The real impact of Covid-19 on consumption may be seen during SH 2020 as there is always a time lag between castor oil exports and the real consumption.

Price Outlook :

Surplus supply over demand during 2020 may not allow prices to move up.  However, excessive lower prices of castor, as compared to competing crops coupled with timely and good monsoon, may lead to lower castor sowing in upcoming season.  Once the monsoon and sowing reports start appearing, market participants may tend to start preparing an 18 month castor demand supply balance sheet through the end of 2021 instead of a six month balance sheet to make their trade decisions.  This may not allow castor prices to decrease beyond certain levels.  Above all, the future of Covid-19 situation globally would have the biggest impact on any market, including castor.

Stay safe and healthy.

 

 

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