Castor Seed Market Analysis & Outlook 2017 - Nirmal Bang · PDF fileIndia, being the single largest producer of castor seed in the world, is likely to witness a decline in the crop

Castor Seed MarketAnalysis & Outlook 2017

Castor Seed MarketAnalysis & Outlook 2017

India, being the single largest producer of castor seed in the world, is likely to witness a decline in the crop

output after the farmers shifted to other remunerative crops during the kharif of 2016. The total castor acreage

fell by more than 24% in 2016-17 in comparison to that of the previous year. In Gujarat, the largest producer of

castor seed, a drop of over 27% was recorded in the acreage with merely 5.65 Lakh hectares being sown.

Rajasthan and Andhra Pradesh also registered a drop in acreage of 14.5% and 32.6% respectively.

An analysis of the situation reveals that the acreage from castor has been shifted to groundnut and cotton

which were more remunerative last year. Pulses acreage also rose significantly which can be attributed to

higher prices it commands. The lower castor seed and oil prices prompted processors and consumers in China

and EU to boost castor oil imports from India during the past year. Farmers too, reduced the crop by sizeable

quantum.

Our analysis of Area, Yield and Production of castor seed for the current crop has been tabulated in comparison

to the previous crop.

Castor Seed Market Analysisand Outlook 2017

2

1 March, 2017st

Kunal Shah

Head - Commodity Research

Anish G

Research Analyst

Agri-Commodities

Source: Ministry of Agriculture and Co-Op, GoI; NB Research; *Average Yield

State/Crop Year

Gujarat

Rajasthan

Andhra Pradesh

Telangana

Others

Total

Area(Lakh ha) Yield(MT/ha) Prodn.(Lakh MT)

AYP of Castor Seed

2015-16

7.81

1.99

0.46

0.47

0.36

11.09

2016-17

5.65

1.70

0.31

0.43

0.30

8.39

%

-27.66

-14.49

-32.61

-8.51

-16.67

-24.33

2015-16

1.502

0.735

0.827

0.675

0.569

0.862*

2016-17

1.524

0.724

0.715

0.874

0.594

0.886*

%

1.46

-1.50

-13.54

29.48

4.39

2.86

2015-16

11.73

1.46

0.38

0.32

0.20

14.09

2016-17

8.61

1.23

0.22

0.38

0.18

10.62

%

-26.60

-15.77

-41.74

18.46

-13.01

-24.67

The global supply of castor seed took a hit after the

crop output from India dipped by a significant

proportion. Brazil production also dropped by over

65% after farmers turned to other remunerative

crops and also because the planned Bio-Diesel

programme using castor seed didn’t take off well.

Global Castor Seed Production

85%

5%

1%2%

7%

India

China

Brazil

African Nations

Others

3

The following table highlights the supply and demand scenario of castor seed in India. The castor seed carry-in

stocks from the previous season is expected to be around 5.03 Lakh metric tonnes. The carry-forward stocks

have remained in the range of 5.00 Lakh and 6.5 Lakh metric tonnes in the past 3 years. But for 2017, we believe

that if the castor oil demand remains steady to high, the ending stocks may reduce to 1.35 Lakh metric tonnes,

which could be the lowest in 5 years.

Source: NB Research

Source: Trade Estimates

Particulars

Production

Carry In

Total Supply

Retention for Sowing

Crushing Demand

Carry Forward

2015-16(Lakh MT)

14.09

6.00

20.09

0.06

15.00

5.03

2016-17(Lakh MT)

10.62

5.03

15.65

0.05

14.25

1.35

Castor Seed Balance Sheet – India

Let us explore the prospects of demand for castor oil edging higher or remaining steady.

Castor seed prices are largely dictated by the export scenario of castor oil. Over the past three years, the annual

export figures have remained bracketed with gains/losses in quantum restricted to 10-15%. We believe that

the current year will not be any different in terms of quantum of export. However, in terms of value, it may fetch

a higher price.

10000

20000

30000

40000

50000

60000

70000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Vol

ume

(in M

T) 2013

2014

2015

2016

Month-wise export of Castor Oil from India (2013-16)


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4

Source: Trade Estimates

Monthly Castor Oil Imports - China (2013-2016)

The castor oil imports by China continue to edge higher. In 2016, the net volume of imports rose by 13% in

comparison to the previous year. The year 2015 witnessed a rise of over 31% in the volume of imports, after a

drop of 25% during the previous year. Overall, the import is likely to upscale in the days to come, considering

the growth of the economy and the demand from the processing industries.

0

5000

10000

15000

20000

25000

30000

35000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Volu

me

(in M

T)

2013

2014

2015

2016

Considering the fact that India’s production and export numbers remain unmatched, a stronger economy in

China will bolster the demand for the castor oil. Moreover, the substitution of castor crop with other

remunerative crops in other growing regions including Brazil and China has also limited the availability of

castor seed.

There is a high probability of US Fed rate hike which may result in U.S. Dollar Index to trade higher, but remain

capped at 105. However, the expectations of a stronger growth in EU and UK could halt the bond purchase

programme by EU. This will probably narrow the interest rate differential. We believe that the U.S. Dollar Index

is likely to trade in a bracket and so will the RMB, which will toggle in the neutral to negative zone, during

medium term. It should be noted that imports of castor oil were higher while the RMB was stronger compared

to USD. From 2014, with RMB depreciating, the USD/RMB recorded a high of 6.96 in the recent past. A

depreciating Yuan may add to the woes of the exporters from India with the exports taking a dip if the currency

continues to slide against US Dollar. We do not foresee a rise in USD/RMB above 7.15 in 2017, unless dictated

by an economic downturn or major capital outflows from China.

Secondly, the imports of castor oil by China grew by 12.9% during 2016 calendar year, and are expected to

record another 8-10% growth in 2017. However, owing to the rising levels of air pollution in China, the local

government adopted a slew of measures to limit industrial production. The major castor oil processing

industries in the north of China were mostly affected wherein the production units trimmed their output of

Sebacic acid by nearly 40% compared to the previous year. While, the prices continue to rein higher due to

supply disruption, the rising inventory of castor oil with the Sebacic acid manufacturers is also a matter of

concern. Large stocks of castor oil in China and EU backed by a rally in the export prices may result in the

slowdown of exports of castor oil from India.


1 March, 2017st

5

Considering the fact that India’s production and export numbers remain unmatched, a stronger economy in

China will bolster the demand for the castor oil. Moreover, the substitution of castor crop with other

remunerative crops in other growing regions including Brazil and China has also limited the availability of

castor seed.

There is a high probability of US Fed rate hike which may result in U.S. Dollar Index to trade higher, but remain

capped at 105. However, the expectations of a stronger growth in EU and UK could halt the bond purchase

programme by EU. This will probably narrow the interest rate differential. We believe that the U.S. Dollar Index

is likely to trade in a bracket and so will the RMB, which will toggle in the neutral to negative zone, during

medium term. It should be noted that imports of castor oil were higher while the RMB was stronger compared

to USD. From 2014, with RMB depreciating, the USD/RMB recorded a high of 6.96 in the recent past. A

depreciating Yuan may add to the woes of the exporters from India with the exports taking a dip if the currency

continues to slide against US Dollar. We do not foresee a rise in USD/RMB above 7.15 in 2017, unless dictated

by an economic downturn or major capital outflows from China.

Secondly, the imports of castor oil by China grew by 12.9% during 2016 calendar year, and are expected to

record another 8-10% growth in 2017. However, owing to the rising levels of air pollution in China, the local

government adopted a slew of measures to limit industrial production. The major castor oil processing

industries in the north of China were mostly affected wherein the production units trimmed their output of

Sebacic acid by nearly 40% compared to the previous year. While, the prices continue to rein higher due to

supply disruption, the rising inventory of castor oil with the Sebacic acid manufacturers is also a matter of

concern. Large stocks of castor oil in China and EU backed by a rally in the export prices may result in the

slowdown of exports of castor oil from India.

Source: Reuters, NB Research

FSG Castor Oil (Kandla) Price Trend

OUTLOOK

500

550

600

650

700

750

800

850

900

9501-

Jan

1-Fe

b

1-M

ar

1-Ap

r

1-M

ay

1-Ju

n

1-Ju

l

1-Au

g

1-Se

p

1-O

ct

1-No

v

1-De

c

1-Ja

n

1-Fe

b

INR/

10kg

2015-16

2016-17

The castor oil spot prices are currently ruling higher due to increasing castor seed prices and demand (higher

than previous year) for the same. However, in the days that will follow, the market arrivals of the fresh crop may

ease the prices by 5-7%. Since the supply of castor seeds is considered lesser than previous season, a steep fall

in prices may not occur.

The current crop output hints at a possible rally in prices. However, the fresh crop arrivals are expected to cap

any sudden surge in prices. From a long term perspective, further depreciation of Yuan may pose risk to the

exports from India. We advise to wait for peak arrivals and buy on dips at around INR 3800 per 100 kg, keeping

a target of INR 4800-5000 per 100 kg. A rally beyond the said prices may not be imminent, considering the

current market situations.


1 March, 2017st

7

COMMODITY & CURRENCY RESEARCH TEAM

Name Designation E-mail

Kunal Shah Research Head [email protected]

Devidas Rajadhikary Sr. Research Analyst [email protected]

Harshal Mehta Sr. Research Analyst [email protected]

Mohammed Azeem Research Analyst [email protected]

Ravi D'souza Research Analyst [email protected]

Nikhil Murali Research Associate [email protected]

Anish G Research Associate [email protected]

Smit Bhayani Research Associate [email protected]

Shrishty Agarwal Research Associate [email protected]

This Document has been prepared by N.B. Commodity Research (A Division of Nirmal Bang Commodities Pvt. Ltd). The information, analysis

and estimates contained herein are based on N.B. Commodities Research assessment and have been obtained from sources believed to be

reliable. This document is meant for the use of the intended recipient only. This document, at best, represents N.B. Commodities Research

responsible for the contents stated herein. N.B. Commodities Research expressly disclaims any and all liabilities that may arise from

company mentioned in this document.

Address: Nirmal Bang Commodities Pvt. Ltd., B2, 301 / 302, 3rd Floor, Marathon Innova, Opp. Peninsula Corporate Park, Ganpatrao Kadam

Marg, Lower Parel (W), Mumbai - 400 013, India

Disclaimer


1 March, 2017st

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Castor Seed Market Analysis & Outlook 2017 - Nirmal Bang · PDF fileIndia, being the single largest producer of castor seed in the world, is likely to witness a decline in the crop