Fundamental Tug of War Clouds Palm Oil Sentiment

Mintec has learned that exports from Malaysia over 1st to 15th January were estimated down over 35% compared to December, stoking concerns over demand for palm in the near term. Although exports were estimated down, Mintec has learned that production over the same period could also be circa 10% lower on the month. This fundamental tug of war could mean that palm oil prices may not decline as steeply as they might have done if production had remained consistent with December's figures.

A Malaysian palm oil trader told Mintec, “there is a tug of war taking place between the seemingly poor demand and reduced available volumes. This could mean that prices move sideways until the market decides what it thinks is the most prevalent factor. In my view, the export figures are likely closer to 40% down month-on-month (m-o-m) and once the market realises this, prices are going to decline. We also have to consider that these export figures mean that key buyers are simply not buying, and this isn’t a good sign.”

Turning to key palm oil buyers, Chinese figures published this week showed an economic slowdown within the country, as Gross Domestic Product (GDP) rose 3% in December but far below last years rate of 6% and lower than the Chinese government's target of 5.5%. This is the worst figure on record for nearly 50 years and has stoked concerns about Chinese demand for palm oil in the coming weeks and months. Besides, although Chinese lockdowns have all but ended, it remains to be seen if Chinese consumption will or will not recover in the near term. Although it is difficult to extrapolate travel data to consumer demand, Chinese travel to other nations is increasing at a steady rate. This may mean that COVID-19 concerns are waning, and the economy is ‘waking up,’ according to market players.

A palm oil broker commented to Mintec, “Chinese consumption is for me one of the most important factors and a low GDP doesn't seem to bode well. We need to know more about Chinese consumption to have any steer of where the market may move. The problem is, of course, that we’re only a few days away from the Chinese holidays. So, we may need to wait until the month's end for consumption data, and even then, it may not be truly representative due to the holiday period. It feels like the market is on a knife edge, but I feel that things are more likely to break lower still.”