Palm Oil Prices Move up Yet Demand Concerns Market Players
Stocks within both Malaysia and Indonesia have plummeted with end-March stocks for Malaysia pegged at 1.67 million metric tonnes, the steepest month-on-month (m-o-m) decline in over 20 years and the lowest level since June 2022. Figures from the Indonesian palm oil association (GAPKI) placed palm oil inventories at 2.64 million metric tonnes at the end of February, a decline of 0.46 million metric tonnes compared to January. The Indonesian stock figures are important, as stock levels in February are lower than when Indonesia placed an export ban on palm oil exports to ensure domestic cooking oil supplies, if indeed the figures are correct.
Furthermore, production concerns have been raised by market players despite Malaysian production for early April estimated up 30-37% compared to early March, in part due to Eid holidays and the continued struggle to obtain labour to pick palm fruit and turn it in for processing. Thus, the current estimates should be taken cautiously, with mid- and toward-month-end values likely to be more indicative of the true production scenario. Furthermore, market players told Mintec that they are uncertain if a significant rise in production is likely over April.
A market player commented, “labour is likely to continue to be an issue, with slow worker return from Ramadan and the weather isn't great either. I wouldn’t be surprised to see a single-digit increase over April rather than the double-digit increase that by rights would be likely.”
Supply concerns mixed with production may mean that prices move up over the coming week, with a market player adding, “current price levels are very cheap, and a move up soon is very likely, we are attempting to buy before this happens.” Although palm oil fundamentals appear to be moving in a bullish direction, palm oil is currently at a significant price premium into destination markets, such as India and China, over sunflower oil which is even cheaper than refined bleached and deodorised (RBD) palm olein. Thus, demand and upward price movements could be curtailed by sunflower oil, as it is a preferred option for these markets and is considered the more premium product.
A separate trader noted, “I think palm mostly from a fundamental standpoint is quite bullish. Yet, we need to examine export demand and how that is going to play into the supply vs. demand picture. We also have to recognise that rivals in key destinations are still cheaper. This could keep a lid on palm oil price rises unless, of course, palm leads them all upwards, which isn't beyond the realms of possibility.”
Despite the relative bullishness of production and the overall supply picture, exports over the first half of April are estimated by market players to be down by circa 30% compared to March.
