Palm oil prices drop to 13-month low on rising output, slack export demand

Palm oil continued to head south with its prices dropping to a near 13-month low as leading producers Malaysia and Indonesia grappled with rising production amidst low export demand.

On Bursa Malaysia Derivative Exchange, crude palm oil for delivery in October ruled at 3,646 Malaysian ringgit (MYR) a tonne ($818.68), the lowest since June 28, 2021. Prices are 40 per cent lower than the peak of over 7,000 MYR ($1,571.80) witnessed in April. 

“Flat demand and overflowing Indonesian storage are putting pressure on palm oil prices,” said Abdul Hameed, Director-Sales, Manzoor Trading in Lahore, Pakistan.

More pressure likely

With prices dropping sharply in the last few sessions, traders and industry experts see further pressure on palm oil. One reason is that some of those who had bought the commodity at higher prices could back out as it makes sense to buy at current rates, which are far lower.  

Hameed, however, said the market could consolidate at the current level looking for further direction from the developments flowing out of Indonesia and Malaysia. “Prices could be hovering between 3,000 MYR and 4,100 MYR. They could be even volatile in this range. Indonesia is trying to export as much as possible to lower its storage level. It could take September for this to happen,” he said. 

Currently, the palm oil market is feeling the heat of lower exports during July 1-20. Cargo surveyors’ data showed that Malaysia’s palm oil export dropped anywhere between 2 per cent and 9.5 per cent during July 1-20 compared with the same period a month ago. 

Malaysian warning

Trading Economics Website said industry research group CGS-CIMB expects Malaysian palm oil stocks to rise by 21.4 per cent month-on-month to 2 million tonnes in July due to weak demand and increasing output. This is besides the pressure that Indonesia stocks are putting on palm oil. 

Indonesia, the largest producer of palm oil, has decided to suspend its levy on exports till August 31 besides going for a 35 per cent palm oil mix in biodiesel by this month-end. It is also planning to lift domestic market obligations for palm producers as edible oil prices in Indonesia have dropped sharply and are now within the reach of the poor.

Indonesia’s move has prompted Malaysia to warm that palm oil prices would rule weak in the current quarter to September. Its Commodities Minister, Zuraida Kamaruddin, said the situation was “inevitable” in view of stiff competition from Indonesia.

Hameed said Malaysia’s production and exports were flat this month compared with June and this could help prices to consolidate. Indonesia’s exports this month could be between 2.2 million tonnes (mt) and 2.5 mt.

Soft oils toe the trend

He said Indonesian inventories may top 8.5 mt by the end of this month and this is a cause for concern when Malaysia’s 2 mt inventories are taken into account.  

The fall in palm oil price has also dragged soft oils such as soyabean and sunflower oils. Soyabean oil prices on the Chicago Board of Trade have currently dropped to 58.2 US cents a pound for October delivery. 

According to the Solvent Extractors Association, the landed prices of RBD palmolein have dropped by 20 per cent in the past month, while crude palm oil prices by nearly 25 per cent. Degummed soyabean oil and crude sunflower oil landed rates are down 15.5 per cent and 19.5 per cent, respectively, during the same period. 

The drop in edible oil prices has led to the domestic refining industry, particularly the Soyabean Processors Association of India (SOPA) and Solvent Extractors Association of India (SEA), urging the centre to hike or restore import duty on edible oils.

Harvest due in Sept-Oct

The SOPA Chairman said Finance Minister Nirmala Sitharaman should consider a duty hike as soyabean and groundnut will be due for harvest in September and oilseeds prices may crash at the current rate of zero duty. “It will affect farmers and result in a setback to domestic oilseed production,” he said. 

SEA President Atul Chaturvedi told his members that the association has sought action against those who fail to utilise licences given under Tariff Rate Quota (TRQ) to import soyabean and sunflower oils at zero duty. 

The Centre had allowed zero-duty imports of these soft oils as a measure to tackle surging inflation and lower edible oil prices. Under TRQ, 2 mt each of these oils can be imported during July-June 2022-23 and July-June 2023-24. 

SEA Executive, Director BV Mehta, said the Centre can only raise palm oil duty as permits for imports under TRQ have been given till June 2023. “Maybe, it can consider some curbs for the next year,” he said. 

Hameed said palm oil prices could begin rising again once Indonesia cuts down its inventories. “Prices should begin to climb again once Indonesia fully exports its excess stocks. By then, prices should firm up at around 5,000 MYR-level,” he said.

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