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High castor oil prices hurt manufacturers

High castor oil prices hurt manufacturers
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First Published: Tue, Sep 21 2010. 01 16 AM IST
Updated: Thu, Sep 23 2010. 05 22 PM IST
Ahmedabad: Industrial grease and speciality chemical manufacturers fear their profit margins will decline with the cost of castor oil, a key raw material, touching a record high in the past two weeks.
“British Standard Specification grade castor oil prices at Kandla port have risen to $1,850 per tonne on free-on-board-basis (around Rs 84,400 today in the domestic market) against $1,640 last month,” said Biren Vakil, an Ahmedabad-based commodity adviser.
“The current price level of castor oil is at an all-time high, which may result in a fall of around 10% in the profit margins,” said Dhruv Vyas, director of Standard Greases (Silvassa) Pvt. Ltd, which manufactures 30,000 tonnes of grease annually and exports to the Philippines, Indonesia, China, Bangladesh and West Asia.
India is the world’s largest manufacturer and exporter of castor oil, and Kandla port is its hub for castor derivative exports. China is the single largest buyer of Indian castor oil, followed by European nations, the US and Japan. The price of castor oil has been rising since February, when it was $1,200 per tonne.
Vakil said castor oil prices were driven by growing demand from China and lower availability of castor seed in India.
India’s castor seed output this year, recognized between October and September, is down 4% to 934,000 tonnes from the same period last year, said B.V. Mehta, executive director of Solvent Extractors Association of India, a group of vegetable oil manufacturers. “India’s castor oil exports stood at 307,625 tonnes during January-August this year, up 73% from the same period last year,” he added.
The supply crunch is expected to continue until December, when the new crop will start arriving in the market.
“Currently, castor oil manufacturers are facing an acute shortage of castor seeds as over 90% of the total castor seed stocks have been used so far,” said Abhay Udeshi, managing director, Jayant Agro organics Ltd, a Mumbai-based castor oil manufacturing and exporting firm, estimating that the price may firm up at $1,900 a tonne.
Firms that manufacture castor oil-based speciality chemicals plan to pass on the price rise to buyers.
“Higher castor oil prices have definitely dented our margins but we don’t have any other option...,” said Haresh Vyas, managing director of Mumbai-based castor derivative manufacturing firm Royal Castor Products Ltd. “We usually enter into quarterly agreements with our buyers and we will have to pass on the rise to buyers.”
Castor oil and its derivatives are also used in the production of bath soaps, paints, various liquid pharmaceutical products and nylons. Bath soap manufacturers said they have shifted to the cheaper palm oil since the prices started rising in February.
“Castor oil is used in the premium soap products like Pears and Dove. However, when castor oil prices firm up, soap manufacturers completely switch over to other alternatives in a bid to control the rise in the production cost,” said a senior official of Yash Enterprises, an Akola, Maharashtra-based soap manufacturing firm that supplies to Hindustan Unilever Ltd (HUL). An email sent to HUL remained unanswered.
“Around 5% of our raw material used to be castor oil while 60% was palm oil. As castor oil prices started rising, we shifted completely to palm oil as palm oil is much cheaper than castor oil,” said a senior official at a firm based in Gandhidham, Gujarat, which supplies so-called bath soap noodles to HUL. Soap noodles are large blocks of soap that are sliced into smaller bars for packaging. Both executives declined to be named.
R.K. Sinha, chief operating officer, Godrej Consumer Products Ltd, said the firm does not use castor oil. “Our soaps are made from 100% palm oil and chemicals like caustic soda, colours and perfumes,” he said.
Unfortunately for soap makers, the shift has not helped much as palm oil prices have also been rising. Imported crude palm oil prices on cost and freight-basis are currently trading at around $890 per tonne at Mumbai port, up 17% since February.
“Companies are known to use mix of castor oil and palm oil at varied degrees as per the formulation for manufacturing soaps,” said Anand Shah, sector analyst with Angel Broking Ltd. “Now with prices of both the raw materials rising, manufacturers have taken a price increase.”
“Higher crude palm oil prices will definitely dent profit margins of bath soap manufacturers. Expenditure on palm oil amounts to around 60% of the total raw material cost of a soap manufacturing firm like Godrej and HUL,” said Kaustubh Pawaskar, research analyst at brokerage Sharekhan Ltd.
Sapna Agarwal contributed to this story.
soumitra.t@livemint.com
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First Published: Tue, Sep 21 2010. 01 16 AM IST