Palm Oil Prices Move up Yet Demand Concerns Market Players
The MBP for Crude Palm Oil CIF Rotterdam [Mintec Code: CPOR] was assessed at $1,025.50/mt, up $16.00/mt on the week due in part to lower production estimates from Malaysia, with the Southern Palm Oil Millers Association (SPPOMA) pegging production down around 22.9% over the 1st-25th March period, as compared to February, due to flooding issues and lack of available labour. Yet, it is worth noting that these SPPOMA estimates only account for southern mills. Although these are critical production areas, production estimates from market players for other mills in the east, west and centre are much higher. Thus, production may decline closer to single figures rather than the nearly 23% being estimated. Despite production potentially being more favourable than expected, exports from Malaysia over 1st-25th March appear to have increased by around 18% according to Mintec estimates. If this figure holds for the rest of March, combined with lower production, stocks within Malaysia could dip below the 2 million metric tonne threshold. Market players submitted stock estimates for March-end to Mintec between 1.85 and 1.95 million metric tonnes. Mintec’s estimates, which use export/import and production calculations, come in at 1.91 million metric tonnes. Stock levels below 2 million metric tonnes are a key psychological and physical barrier for market players, and a drawdown below this level is likely to cause a bullish reaction which could cause prices to increase from current levels, according to market players.
A palm oil trader commented to Mintec, “palm oil fundamentals have been bullish for more or less the whole of March. The only thing causing prices to wobble was the macro issues which have now faded to a large degree. We are now coming back to a fundamental basis and stocks are likely to move lower from a Malaysian perspective. If stocks do move below 2 million metric tonnes, which seems likely, it’s going to be a much tighter monthly supply outlook.”
Despite some of the bullish sentiment expressed, concerns have been raised about the demand picture moving forward, which will likely need to be sustained for the continued price recovery of palm oil. European buying, which has been strong, could be limited longer term according to market players, because both sunflower and rapeseed oil are currently priced at a discount and are likely to offer strong competition to palm oil usage. Besides, Chinese buying of palm oil has slumped in recent months, with Mintec estimating Chinese purchases down 20-25% over February compared to January, largely because of the high stocks that China currently holds. These Chinese stocks are estimated to be more than 900,000 metric tonnes, according to Mintec calculations. Thus, unless consumption increases and draws down the high stock levels, then buying of palm oil is likely to be limited over the rest of March and into April, according to industry sources.
A palm oil trader commented to Mintec, “although prices have risen, I don’t think we should get too carried away. Demand is very weak from an international perspective. Stocks are high and there are large pipelines, I am not sure that the picture is all that bullish at all. We need to see a few weeks, if not a month, of sustained buying from the major importers, such as India and China, which right now we simply haven’t.”
