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Wednesday February 1st, 2023

Sri Lanka food, shampoo firms hit by midnight ‘regime uncertainty’ as palm oil banned

ECONOMYNEXT – Sri Lanka firms producing a range of foods and personal care items would be hit by a palm oil ban, in addition to publicly traded companies growing the plant which would have be uprooted under state orders, an equities research report said.

Sri Lanka produces c. 8 percent of it annual palm oil requirement and imports the remaining 92 percent, estimated at 200,000 tonnes from Indonesia and Malaysia, CAL an investment bank said in a research note to clients.

“Due to Sri Lanka’s palm oil sourcing mix, the implementation of a complete importation ban will be complex due to the high demand for palm oil spanning across multiple industries and the inability of local production to fulfil the existing demand,” CAL Research said.

“A hike in palm oil prices will lead to an immediate contraction in margins, as entities will be unable to shift the incremental cost onto the consumer.”

Many domestic industries relied on palm oil due its relatively lower cost.

Publicly traded Hemas Holdings used palm oil to make soaps and shampoos. Ceylon Cold Stores used palm oil in iced confectionary.

Ironically other companies that are affected are firms that vigorously opposed free trade pacts.

Other firms that could be hit included Unilever, Maliban, Ceylon Buiscuits and Prima, the firm said.

Meanwhile CAL said alternatives included rapeseed oil (Canola) and coconut oil.

However Sri Lanka only produced 27,000 metric tonnes of coconut oil.

Meanwhile about 11,000 hectares of palm oil planted by listed companies who jumped on an ‘import substitution’ tax arbitrage scheme have been ordered to be uprooted as part of the anti-palm oil measures.

Sri Lanka’s current administration which favours import substitution to ‘save’ foreign exchange, which is in short supply due to

Sri Lanka has raised import taxes on edible oils about a decade ago to satisfy a powerful coconut land-owner lobby who have old-established connections with Sri Lanka’s elected ruling class.

Usually business running import substitution rackets have strong connections with the elected ruling class, but palm oil companies got a free ride without actually having to establish links, analysts who are familiar with the issue say.

While other “import substitution” firms are arbitraging taxes that would have otherwise gone to the Treasury. (Colombo/Apr07/2021)

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Sri Lanka bond yields down at close

ECONOMYNEXT – Sri Lanka’s bond yields were down at close following a bond auction on Wednesday, dealers said while a guidance peg for interbank transactions remained unchanged.

“The rates were steady at the auction,” a dealer said.

“This can be a signal to the market saying the rates will go down in the future.”

A bond maturing on 01.07.2025 closed at 32.40/60 percent, down from yesterday’s 32.60/85 percent.

A bond maturing on 01.05.2027 closed at 29.10/35 marginally down from yesterday’s 29.20/75 percent.

The Central Bank’s guidance peg for interbank US dollar transactions remained unchanged at 362.14 rupees against the US dollar.

Commercial banks offered dollars for telegraphic transfers at 371.38 rupees on Friday, data showed. (Colombo/Feb 01/2022)

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Sri Lanka bill auction hits pothole after 2025 bond spike

ECONOMYNEXT – Sri Lanka sold only 45 billion rupees in Treasury bills at Wednesday’s auction after offering 120 billion rupees, data from the state debt office showed, amid market confusion over a spike in a two year bond at an earlier action.

30.1 billion rupees of 3-month bills were sold at 29.91 percent, unchanged from a week earlier after offering 60 billion rupees for auction.

5.1 billion rupees of 6-month bills were sold at 28.72 percent, flat after offering 30 billion.

10.3 billion rupees of 12-month bills were sold at 27.72 percent after offering 30 billion.

Phase II subscriptions have been opened.

The market was foxed after the 2025 bonds were accepted at sharply higher yield than market on January 30, dealer said.

There was further confusion as the there was an outright purchase of 2025 at around 29 percent earlier in January.

Some investors speculated that the authorities were trying to drive more buyers towards short end bonds as bill volumes were getting larger. (Colombo/Feb01/2023)

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Sri Lanka services exports down 5.9-pct in 2022

ECONOMYNEXT – Sri Lanka’s services exports were estimated to have fallen 5.9 percent to 1,876.3 million US dollars, the island’s Export Development Board said.

Services exports estimated is made up of ICT/BPM, construction, financial services, transport and logistics.

There are more than 500 ICT companies, the EDB said.

Sri Lanka’s merchandise exports were up 4.6 percent to US dollars 13.1 billion dollars in 2022 from 2021.

Sri Lanka’s goods exports are slowing amid lower growth in Western markets. (Colombo/ Feb 01/2023)

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