Advance SO trade puts edible oil traders in trouble

Highlights:

• Citigroup is accused of selling SO in advance collecting over Tk300cr
• Products purchased two years ago have not been delivered yet
• At times, the same DO is sold more than 100 times
• Stakeholders think that collecting money in advance without supplying the product for a long time is nothing but deceiving edible oil traders

Edible oil traders of the country are facing trouble due to the practice of demand orders (DOs) being sold in the market by importers.

It has been alleged that if cash is required, importers of edible oil collect money from the market by releasing DOs in advance, long before they import the product.

While releasing these DOs in the market, the importers sell more DOs (now SO, or supply order) than their capacity. Against the DOs, trading companies then sell slips in the market at a price lower than the ongoing market price.

Usually there is a 15-day time limit for collecting the oil from mills against the DOs. But, tempted by thoughts of making huge profits, no one collects the product on time. At times, the same DO is sold more than 100 times.

But the abnormal rise in edible oil prices over the last year has created problems for importers and wholesalers. The mill owners are now delaying the supply of goods against these old DOs which were released in the market at low prices. As a result, wholesale traders are suffering since they are not getting the products even after having the DOs, purchased at higher prices in the last stage. Their capital remains stuck, ultimately affecting the country's edible oil market.

This unethical trend has been going on in the wholesale market mainly at the behest of importers and trading companies, affecting importers, traders and retailers of edible oil simultaneously.

RM Enterprise of Khatunganj wholesale market in Chattogram bought 30 drums of palm oil on 16 October 2019 from VOTT Well Refinery Limited, a sister concern of City Group.

According to the Supply Order (SO), altogether 6,120 liters of palm oil in 30 drums, 204 liters per drum, were scheduled for delivery between 16 October and 31 October of that year.But through local trading, the buyer organization RM Enterprise's SO passed into the hands of other edible oil traders in Khatunganj. City Group has not received the delivery of this product in the last 17 months, even though 6,120 liters of palm oil were supposed to have been delivered against the SO by October 31, 2019.

In the same way, City Group was scheduled to deliver 30 drums of palm oil more to RM Enterprise between 12 August and 27 August, 2020. But Citigroup has not delivered the product in the last 6 months.

According to Khatunganj edible oil traders, by mid-2018, Citigroup had sold 10,000 vehicles (61.2 million litres) of palm oil. But in the last two and a half years, the company has been able to deliver only 3,000 vehicles of oil (21.6 million litres). In other words, Citigroup has not been able to deliver 7,000 vehicles of palm oil till now.

According to the traders, from 2018 to 2019, the price of a maund of palm oil was between Tk2,200 and Tk2,500. However, since the beginning of the corona pandemic, the price has increased step by step. Palm oil has been selling at Tk3,000-Tk3,800 for a year now. As such, since 2018, Citigroup's palm oil has been sold at an average price of Tk3,000 per maund (40.90 litres). The value of 7,000 vehicles of palm oil that have not been delivered since 2018 by Citigroup is at least Tk314.23 crore.

The traders allege that City Group has so far collected Tk449 crore from the market by selling edible oil advance supply orders (SOs). But so far the company has supplied edible oil worth only Tk135 crore. The traders think that collecting money in advance by the City Group without supplying edible oil for a long time is nothing but a ploy to deceive edible oil traders.

The traders also complained that Citigroup is currently delivering 20-25 vehicles of palm oil daily in Khatunganj. With so few deliveries per day, it will take more than a year for the company to deliver the 7,000 vehicles of palm oil it has already sold to traders.

Abdur Razzak, an edible oil trader in Khatunganj and proprietor of Ismail Traders, said he bought City Group's products in 2018 through RM Enterprise, a major edible oil agent in Khatunganj. But he had not yet received the product. "There are hundreds of other small traders like me who have been buying products for a long time without getting it. But City Group has swindled hundreds of crores of taka out of these traders by selling products in advance."

However, not only City Group but also Meghna Group, TK Group and almost all other top edible oil importers and refinery mill owners in the country have been accused of raising capital from the market by releasing extra demand orders (DOs) in the market.

Different stakeholders in the sector think that as there are no rules about advance sales, importers and trading companies are getting the opportunity to trade in illegal DOs and slips.

Mohammad Alamgir, proprietor of RM Enterprise, said the price of Citigroup's palm oil is about Tk100 less per maund than other brands on the market. That was why traders of different districts and upazilas of the country, including wholesale and retail traders of Khatunganj, have been buying palm oil from Citigroup. Delivery was being delayed as the number of buyers was more than could be met by the edible oil produced in the factory. The trader admitted that the products currently being delivered had actually been sold through SOs in 2018 and 2019.

Citigroup Executive Director (Corporate Affairs) Biswajit Saha said that as per rules, the product would have to be delivered within 15 days of sale. But many buyers in Khatunganj had not taken delivery of the products sold a year or two ago. "We have written to the buyers more than once, even after they did not take delivery on time. But they did not take delivery of the products on time. Now that the price of edible oil has reached record high levels in the domestic and global markets, the buyers are rushing to take delivery of the products bought a year or two ago.

"But we have limitations in the factory, from the oil refinery to transportation. We can't deliver the product if all buyers want it all together," he added.

The official claimed that this inconsistency was created in the market due to local trading or slip trade through supply orders (SOs) of wholesale traders in Khatunganj.

At present, about 1,200 DO serials have been placed to the mill of Citigroup which will be delivered up to 13 March next.

However, the mill owners claimed that the traders did not send the DOs sold earlier in the market due to the increase in prices in the domestic market, due to which many companies could not import edible oil as there were stocks of edible oil in their tankers. City Group also canceled a large consignment of palm oil which they had booked in late 2020.

Mahbubul Alam, president of the Chattogram Chamber of Commerce and Industry, said every year, Ramadan affected the market as demand for edible oil increased during the season. However, the situation was different this time as the price of global edible oil had doubled even before the upcoming Ramadan. In this case, it was possible to prevent market instability if the mill owners of the country released DOs according to their capacity. He feels that both importers and wholesalers are suffering from the numerous change of hands of the DOs.

In Khatunganj, a wholesale market for consumer goods, per maund palm oil (40.90 liters) is currently being sold at Tk3,800, palm super oil at Tk 4,000 and soybean at Tk4,500. As such, palm oil is being sold at Tk93 per liter, palm super at Tk95 and soybean at Tk110 per liter. However, on 18 February, the government fixed the wholesale price of palm super at Tk95 per liter and soybean at Tk107 per liter.