Commodities

Crude palm oil rises sharply despite Covid-19

AJ Vinayak Mangaluru | Updated on November 17, 2020

Drop in global production, China’s strong buying push up prices

Post-lockdown, the prices of crude palm oil (CPO) have crossed more than 60 per cent on futures market, and more than 50 per cent in the spot market.

The May CPO future contract closed at ₹572.40 for a 10-kg unit on MCX on May 7. On November 14, the November CPO future touched a high of ₹918 registering a jump of around 60 per cent in six months.

The MCX spot market price of CPO touched ₹916 for 10 kg on November 14 — up by 51 per cent, against a low of ₹606.8 on May 7.

Subhranil Dey, Senior Research Analyst of SMC Global Securities Ltd, told BusinessLine that all the oilseed and edible oils in the domestic and in the international market have given returns much more than the investors’ favourite asset class gold this year. Various factors such as pandemic-led supply disruptions in Malaysia, dryness of weather in South America, and China’s strong appetite to fill its food reserve, acted as a catalyst for these commodities, fuelling the price rise, he said.

Production woes

The production decline is cited as one of the important reasons for firmness in the prices of CPO in the global market. Presenting a paper at the Virtual Palm & Lauric Oils Price Outlook Conference organised by BMD (Bursa Malaysia Derivatives) recently, Sathia Varqua of the Singapore-based Palm Oil Analytics said that the production reduced by 5.5 per cent in Indonesia during the first nine months of 2020 and 4 per cent in Malaysia. Varqua said the extended period of dry weather, reduced use of fertiliser from last year, and workers’ problems impacted the output in Malaysia. In fact, CPO production in Malaysia decreased by 7.75 per cent to 1.74 million tonnes (mt) in October.

Vinod TP, Senior Analyst at Geojit Financial Services Ltd, said the increase in domestic demand for palm oil ahead of festivals amid lower stocks supported the gains. Moreover, sharp gains in BMD Malaysian palm oil prices on the back of higher exports from Malaysia and lower stocks propped up the domestic CPO prices, he said, adding that the BMD Malaysian palm oil futures touched an eight-year high.

Varqua said that the lower crop outlook in Ukraine and steady demand from India kept sunflower oil prices bullish in August and September. Sunflower oil prices provided ballast to CPO prices lifting it up on futures and the physical market, he said.

Outlook

Asked if the current price trend will sustain in palm oil, Vinod said demand is cooling as winter starts to commence this month and prices are likely to witness a softening trend. “We expect to see some corrective sell-offs in November CPO prices in MCX. Price is likely to trade in choppy within a range of ₹950-830 levels. On the international front, prices are likely to trade in a range of RM (Malaysian Ringgit) 3,200-2,900 per tonne,” he said.

Published on November 17, 2020

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