Malaysian Palm Oil Board Report: Production Surges & Slow Export Concerning

Malaysian Palm Oil Board MPOB Report: Palm oil production surges by 26.8% and stagnant exports raise concerns

The latest report from the MPOB reveals a significant surge in palm oil production, with a 26.8% increase in May compared to April, aligning closely with the estimates provided by market players to Mintec before the report's release, who anticipated a rise of 25-30%. Furthermore, end stocks reached 1,686,782 metric tonnes, representing a substantial uptick of nearly 200,000 metric tonnes since April. These figures signify the highest ending stock level since February 2022.

In contrast, export numbers remain relatively stagnant, showing a minor decline of 0.78% during the same period. The lacklustre export performance reflects a steady yet unremarkable demand as rival vegetable oils like sunflower and soybean oil compete for palm oil's market share. India's decreasing palm oil imports, which have reached their lowest point in over 25 months, further highlight the availability of alternative options.

Now that the market has digested the report, attention is shifting to the upcoming Environmental Protection Agency (EPA) final ruling for Renewable Volume Obligations (RVO) mandates, set to be released on 14^th June. This ruling is expected to have a critical impact on the supply and demand outlook for US soybean oil, as well as price movements in the market. There is ongoing market discussion suggesting that an increase in the use of soyoil in blends could potentially drive up soybean oil prices, making palm an attractive alternative option. Market players are closely watching for any developments regarding this issue.

Another important factor is the emergence of an El Niño event forecasted for H2 2023. El Niño events typically last for about a year and can result in hot and dry weather conditions in countries like Indonesia, Malaysia, Europe, Canada, and Australia. If this weather pattern materialises, it could lower palm fruit production and subsequently deplete global supplies. This will be a crucial factor to monitor in the coming months.

Mintec's assessment of the MPOB report is that, taken in isolation, it has a bearish outlook for palm oil. However, the aforementioned factors, including cheap rival oils, the EPA ruling and the potential impact of an El Niño, could shift market sentiment in the coming weeks.