Palm Oil Moves Lower Yet Bullish Fundamentals Emerge
The MBP for Crude Palm Oil CIF Rotterdam [Mintec Code: CPOR] was assessed at $979.50/mt, down $16.00/mt on the week. The price decrease was partly due to the bearish sentiment expressed by key speakers at the Palm & Lauric Oils Price Outlook Conference & Exhibition (POC2023), which caused sellers to lower prices during the week. Despite this, production from both Malaysia and Indonesia looks set to fall significantly in February, with market players estimating a production decline of 13% in Malaysia compared to January figures. If this turns out to be the case once the Malaysian palm oil board figures are released, it may mean that there is far less palm oil to be exported over March, providing bullish momentum to the price.
A trader commented to Mintec, “the worker shortage is a real issue impacting production. Most of them are going to be slow to come back. That alone could keep production on the back foot during March. I am bullish on palm oil in the near term. It’s still the cheapest oil that is easy to get and can replace some of the other riskier oils, such as sunflower oil. Production is going to take a massive hit over March if these early numbers are anything to go by and stocks, therefore, could be the lowest we have seen in a year or more.”
Mintec has heard from market players that heavy rainfall has caused large flooding in Indonesia and Malaysia and, so far, production estimates in Malaysia are down 60-70% in March compared to February. Although it is hard to extrapolate these figures longer-term, if production is down even a smaller percentage with exports continuing even at a moderate pace, stocks would be on track to drain to below 2 million metric tonnes, down from an estimated 2.27 in February. If this were to be the case, it would be the lowest stock level since July 2022, when prices were assessed between $1,479 and $1,079/mt. Turning to Mintec data, lower exportable supplies of this size usually increase palm oil prices by between 10-30% from current levels. Although some of the potential gains in the palm oil market are likely capped due to the relatively low-priced rival vegetable oils, such as rapeseed and sunflower, palm oil prices in the next few weeks may rise According to market participants.
A palm oil trader told Mintec, “I am bullish on palm oil in the near term, but on a longer scale who knows? Stocks are still high at key buyers, such as China and India, but they will consume those and need to come back for more. Buying sunflower oil at any point from April onwards is a risk that many players don’t want to take and this should help foster more palm oil demand.”