In a follow-up to a story published here, the palm oil market continues to have clouded sentiment. Production over February may decline 3-5% as compared to January, according to market players, in contrast to increased exports, with market players telling Mintec that exports so far this month are up over 12% compared to the same period in January . If exports continue to climb, stock levels may draw down. Thus, suppliers may begin to struggle to supply the expected demand in March and prices could move upwards from current levels. Although it is early in the month to extrapolate trade data, Mintec has heard that the demand appears to be coming from India and other international players, and trades have occurred for March shipment at $1,007.50/mt and $1,012.50/mt.
A trader commented to Mintec, “the palm market feels like it is set to turn now. The purchases from India and China suggest that demand is back, and based on the shortage in supply and Indonesia’s B35 policy, it seems likely that prices trend upward now.”
Despite the increase in demand, Mintec has learnt that key buyers, such as China and India, still hold considerable palm oil stocks, with the former estimated to have 918,000 metric tonnes with very little decline week-on-week (w-o-w). Continued high stocks at origin and little disappearance in the form of consumption may mean that China is not looking to purchase stocks in the immediate term, which could limit demand for palm oil in the coming weeks. Adding to the bearish momentum from key buyers are the credit issues impacting Pakistan, the Middle East and Bangladesh, as the credit issues are making it difficult to buy large volumes of palm oil, lowering demand from these countries and regions.
A trader told Mintec, “demand from key buyers has begun to pick up, but we need to be cautious and see how the next week or so plays out. Some buyers are having issues with credit and are unable to conduct any large buying at all. I am fairly bearish longer term for palm unless we see these stocks starting to draw down in a significant way.”