Nigeria's palm oil sector has shrugged off a sluggish
national economy, as currency restrictions on importers sends domestic crude
palm oil prices soaring, broker ARM Securities.
"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,"
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, the broker said.
Nigeria has struggled with a shortage of foreign currency in
the wake of the oil price collapse.
In response, the Central Bank of Nigeria (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% year-on-year
by our estimates," ARM said.
Rising prices benefit
The broker 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% over 2016 to 661.4 naira per kilogramme,
as importers who account for 29% of local supply cutback on imports," ARM said.