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," 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, 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.
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.
By William Clarke