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Informist, Monday, Dec. 9, 2024

 

By Anjali Lavania

 

MUMBAI – Palm oil prices are expected to gain in the near term as output is anticipated to be low in key producing countries like Malaysia and Indonesia. Market participants anticipate Malaysian production, exports, and stocks to have fallen during November due to unfavourable weather conditions and ageing palm trees. 

 

"There are two reasons for low productivity in Malaysia. First, as trees are getting older, lower output is expected, and second, due to floods in producing regions," Rahul Chauhan, director of IGrain India, said. 

 

Palm trees have a lifespan of nearly 25 years. They are fruitful till 10 years and after that their productivity starts to decline. Around 25 years of age, trees become uneconomical. 

 

According to media reports, Malaysia's meteorological department forecast a monsoon surge from Dec. 8 to Dec. 14, which could bring continuous rainfall to the east coast of Peninsular Malaysia and parts of Sabah and Sarawak on Borneo Island.

 

Palm oil production in Malaysia is anticipated to be at 1.58 million tonnes in November, according to data provided by Chauhan. Malaysian palm oil production in October was at 1.79 million tonnes, according to preliminary data from the Malaysian Palm Oil Board.

 

This reduction in palm oil production is primarily due to unusually heavy rainfall, which has led to flooding in northern Malaysia, Indrajit Paul, head of research at Agrocorp International, said.

 

"This is a seasonal decline that happens every time. From November to February, palm oil production will be low and from March onwards, a rise in production will be seen," Sunvin Group Chief Executive Officer Sandeep Bajoria told Informist.

 

Palm oil prices are rising at Bursa Malaysia Derivatives in anticipation of low production. "Last week there was a sharp increase in palm oil prices at Bursa Malaysia Derivatives due to the above-mentioned factors," Chauhan said.

 

"The current upward momentum in palm oil prices, as seen in the BMD, reflects tightening inventories and supply concerns. Moreover, Indonesia has increased its crude palm oil reference price for December to $1,071.67 per tonne, up from $961.97 per tonne in November. Consequently, the export tax has been raised to $178 per tonne, compared to $124 per tonne in the previous month," Paul said. 

 

At 1448 IST, the most active February contract of palm oil at BMD was at 5,135 ringgits per tonne, up 0.2% from the previous close.

 

"Palm is the costliest oil around as of now," Bajoria said. Palm oil is trading at around $1,310 per tonne for December shipment, he said. Imports in December in India are likely to fall and could come down to 550,000-600,000 tonnes, Bajoria said. 

 

Currently, December soyoil shipments are traded at $1,160 per tonne including cost, insurance and freight, Bajoria said. "The difference between palm and soyoil is around $150 per tonne. As a result, imports of soyoil will rise," Bajoria said. Indian importers are booking strong soyoil shipments for December, January, February and March, and soyoil shipments should be at least 400,000 tonnes per month, he said. The imports may rise to 500,000 tonnes per month during Apr-Jul, he added. 

 

Total palm oil imports to India in November are estimated to fall slightly to 842,000 tonnes from 846,000 tonnes in October and 869,000 tonnes during the same period last year. "The palm oil imports turned out to be, as expected, slightly lower by 50,000 tonnes than our first estimate," Rajesh G. Patel, managing partner of GGN Research, said.

 

In the short-term (1-3 months), palm oil prices are expected to remain firm, driven by supply tightness from declining production due to heavy rainfall and flooding in Malaysia, Paul said. 

 

Paul sees palm oil prices moderating in the medium-term (3-6 months), as the global soybean surplus from the 2024-25 harvest exerts downward pressure on soyoil prices, encouraging substitution in some sectors. "The narrowing price differential between soyoil and palm oil could stabilise palm oil prices, particularly if demand shifts to soyoil in Southeast Asia's food sector," he said. 

 

In the long term (6-12 months), palm oil prices are likely to remain well supported due to structural supply limitations and increased global dependence over the past decades. The Indonesian biodiesel mandate could further limit exports, tightening global availability, Paul said. 

 

Malaysian crude palm oil inventories are expected to range from 1.78-1.79 million tonnes in November, representing a 5-6% drop month-on-month and 25-26% year-on-year, according to estimates by Paul. Malaysian palm oil inventories in October were at 1.88 million tonnes, according to preliminary data from the Malaysian Palm Oil Board.

 

Palm oil exports in November are expected in the range of 1.50 million tonnes-1.55 million tonnes, down 11-14% month-on-month, but 6-10% higher year-on-year, Paul said. Malaysian palm oil exports in October were at 1.73 million tonnes, according to preliminary data from the Malaysian Palm Oil Board. End

 

US$1 = INR 84.73

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Deepshikha Bhardwaj

 

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