An attendant arranges different brands of cooking fat at a city supermarket. The cost of cooking oil could go up after pirates hijacked a ship ferrying palm oil. Photo/LIZ MUTHONI
Cooking oil manufacturers are racing to avert an impending shortage in the region following the hijacking by pirates of a ship carrying palm oil – a key ingredient used in manufacture of the product.
MV Gemini, a Singapore-registered ship carrying 28,000 tonnes of palm oil imports from Indonesia, was hijacked on April 30 off the Kenyan coast.
Manufacturers say ongoing negotiations to release the ship are uncertain and have therefore turned to sourcing for a fresh consignment.
Niral Shah, the managing director of Kapa Oil Refineries, said it may take up to one month to ship another load of palm oil, raising fears of a shortage of the commodity and a possible surge in retail prices of related products like cooking oil, cooking fats, margarine, soap and cosmetics.
“It remains unknown whether the ship will be released in time since it takes time to find another ship,” said Mr Shah.
He said his company risked running out of raw material stocks after three weeks.
The manufacturers said the consignment was expected to serve Kenya and neighbouring countries for about 20 days before the next shipment.
Mr Shah said oil manufacturers import the raw material in one consignment- which gives them the price advantage of economies of scale, but also makes them vulnerable to slight disruptions in shipments.
“Most manufacturers import together in smaller quantities to avoid having their money tied up in stock,” he said.
Officials at Pwani Oil refineries however refused to comment, only saying the issue was sensitive.
The shortage arising from the disruption of the shipment is expected to pile pressure on supplies of the product even as manufacturers predict price hikes for the commodity whose cost has picked up in the first quarter of the year.
“It will result into a shortage because most Kenyan manufacturers import one consignment together to save on the cost,” said Mr George Langat, chairman of the Kenya Shippers Council.
He said that the shipment risks going bad since the chemical structure of Palm Oil tends to change if transportation is delayed.
The managing director of the Kenya Maritime Authority, Ms Nancy Karigithu, said the ship, MV Gemini, had left the port of Kuala Tanjung in Singapore for Mombasa when it was attacked, adding that it was hard to predict when the consignment was likely to be released.
“We only have the details of the ship but we cannot tell how far the negotiations have gone,” she said.
The ship was expected to dock at Mombasa on May 3.
Cooking oil brands like Elianto and Rina have increased in price by 27 per cent and 37 per cent respectively since December to retail at Sh425 and Sh445 for two litres cans respectively.
Prices of Golden Fry and Fresh Fry have risen to Sh400 and Sh410 for two litres respectively, representing a 27 per cent and 31 per cent rise in prices in the period.
Manufacturers however said they were not predicting any price increases as yet.
Mr Vimal Shah, the managing director of Bidco East Africa, said they were working on an alternative shipment.
“We got the information about the attack on April 30. We are working to see whether we can find an alternative ship,” he said.
Data from the International Monetary Fund shows that palm oil, which is used to manufacture cooking oil, soap and cosmetics among other products increased in prices from $1,060 per tonne in December 2010 to $1,248 per tonne in April.
Manufacturers said they were unable to reduce prices due to high freight costs coupled with a weak Kenyan Shilling.
Manufacturers are also attributing the high prices to surging insurance costs sparked increased piracy incidents that have been passed to freight costs by ship owners.
The manufacturers said the country consumes about 27,000 tonnes in about 20 days adding that they import in small volumes to avoid having idol stock.
The prices of cooking fat rose by over 27 per cent between December and May this year on high palm oil prices and increased pump fuel prices but analysts reckon this may go even higher adding pressure to the cost of living.
This is expected to add an upward pressure on inflation figures which surged to 12.05 per cent last month, complicating government’s efforts to cushion the poor from escalating costs of living.
The Central Bank of Kenya increased commercial bank borrowing rates by a quarter a percentage point to 6 per cent in March this year to curb rising inflation and stabilise the exchange rate.
The consumer price index which measures the rate of change a basket of consumer goods showed the highest change being recorded in food and non alcoholic beverages and transport expenses.
In a report released last month by the International Maritime Bureau, piracy at sea hit an all-time high in the first three months of 2011.
The sharp rise was driven by a surge in piracy off the coast of Somalia, where 97 attacks of the total 142 global incidents were recorded in the first quarter of 2011, up from 35 in the same period last year.
The overwhelming number of vessels hijacked off Somalia took place east and north east of the Gulf of Aden where some positions of some of the attackers’ mother ships are known.
“It is vital that strong action is taken against these mother ships to prevent further hijackings,” read the report.
Mr Langat said that piracy cases have been on the rise especially in the last few months of the year posing potential danger to trade between Kenya and other countries.
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