Palm oil likely to head further south on slack demand

Traders and analysts say that after dropping more than 20 percent so far in 2023, palm oil prices are likely to fall further due to weak demand before a partial recovery in the second half.

“…prices will be pressured by continued weak demand for imports from mainland China and India,” said research agency BMI, a unit of Fitch Solutions.

Between January and March, China imported 1 million tons of palm oil (and palm oil parts), up significantly from imports of 0.3 million tons during the same period in 2022. But it was lower than imports at 1.3 million tons during the same period in 2019.

many stressors

“The palm oil market is under pressure due to several factors in the vegetable oil market. This is due to the huge crop size and huge supplies to the United States and Brazil. “Sunflower oil prices are currently lower than palm oil prices and demand appears to be weak in many destinations, especially India and China,” said Abdul Hameed, Sales Manager, Manzoor Trading in Lahore, Pakistan.

Sunflower and soybean oil prices are falling. So why do we buy palm oil? “The purchase of sunflower oil is very much in line with the export corridor (in the Black Sea region),” said PV Mehta, executive director of the Solvent Extractors Association of India (SEA).

On Wednesday, the benchmark August palm oil contract on the Malaysian derivatives exchange closed lower at RM3,393 per tonne. At the beginning of the year, the price of palm oil was more than RM4,200.

price forecast

According to SEA, RBD palmolein is currently priced at US$890 per tonne and crude palm oil at US$905 per ton, cost and freight. The price of degummed soybean oil is $940 and sunflower oil is $955.

BMI said: “We are sticking with our average annual price forecast for palm oil, maintaining our view that the third month palm oil futures contract will trade at an average value of RM3,800 through 2023 before dropping to an average level of RM3,400. Malaysia until 2024. .

On a year-to-date basis, it said, prices averaged RM3,872 until 2023. Palm oil ranged between RM3,200 and RM3,380 due to oversupply in the producing countries. “Prices are near the bottom and the market needs some spark to rise in the short term,” Hamid said. He said hot weather in Asia was a deterrent as demand shifted from edible oils to seasonal fruits such as mangoes.

India has huge stocks

The pressure on palm oil is also due to 3 tons of edible oil reserves. “Global oilseed production is 600 million tons, up by 16 million tons this year,” said Mehta.

Besides, India has huge stocks of non-mashed soybeans and mustard, which gives a bearish outlook, he said.

In the near term, BMI said its outlook is not optimistic as the global soybean harvest in 2023-24 is expected to be the highest. “Since the end of 2022, the soybean price premium to palm oil has fallen by about two-fifths, falling from $462 per ton to $286 per tonne as of May 17, 2023,” the research agency said.

Demand in China is not picking up and traders in the communist country have turned to soybeans. “Argentina is crushing as hard as they can to deliver their contracts early and that has also affected demand,” Hamid said.

El Nino factor

“Prices may fall more by $50 per tonne, although Indian farmers may be affected as a result,” Mehta said.

He said lower prices have led India’s imports of edible oil to rise to 8 million tons in the first six months of the current oil season until October, and total shipments to the country could reach 14 metric tons.

BMI said El Niño, which is expected to start later this year, could drive up prices. Last when El Nino, which led to drought in Asia, hit in 2015-2016, palm oil production fell by 6 percent.

In the long term, the research agency said, palm oil prices may head below RM3,000.