MARKET DEVELOPMENT
Ramadan, Unusually, Not Good News for Palm Oil Sellers
Ramadan, Unusually, Not Good News for Palm Oil Sellers
24/06/2014 (Wall Street Journal) - Usually the Muslim festival of Ramadan is preceded by higher demand for palm oil, the world’s most widely-used vegetable oil, but this year it is not happening, and soyoil is to blame.
During Ramadan, Muslims don’t eat or drink during daylight hours, but break their fasts after nightfall, with this usually contributing to higher palm oil use. Last year, when Ramadan started on July 9, in the three-week period June 1-20, palm oil exports from Malaysia, the world’s second-largest exporter, rose around 15%.
This year is different. Ramadan starts this weekend, but Malaysia’s June 1-20 exports are down between 5.8% and 8.6% on month-earlier levels and have been slowing since early May, cargo surveyors Intertek and SGS say. Traders blame a narrowing of palm oil’s price discount to rival edible oils, particularly soybean oil.
Citi Futures specialist Sterling Smith says the premium of soyoil to palm oil is around $127 a metric ton, below the one-year average of $132. Just two weeks ago on June 10, the differential was around $117/ton.
Palm oil prices rallied to an 18-month high in March 2014 due to very dry weather in major producing countries Indonesia and Malaysia, with this contributing to a narrowing in the premium, although the price of benchmark palm oil on the Bursa Malaysia has eased 17% since then. Chicago Board of Trade soybean oil prices meanwhile hit a fourth-month low in early June although they are now 5.1% higher year-to-date.
India, the world’s leading importer of palm oil, is a factor. From February to May in 2013, palm imports made up 80% or more of Indian edible oil imports, said Govindlal G. Patel, managing partner of G.G. Patel & Nikhil Research Co. This proportion dropped to 60%-65% from March to May 2014, he said, citing data from The Solvent Extractors’ Association of India.
There are around 177 million Muslims in India, third only in size to populations in Indonesia and Pakistan
“Traditionally, Indians use soft oils like groundnut or rapeseed for food. Palm oil is not grown in India and is primarily an import so when the price premium narrows, it encourages the consumptions of other oils,” said Mr. Patel.
The U.S. Department of Agriculture forecasts that India will import 8.3 million tons of palm oil the marketing year which started last October, unchanged from a year ago. China, ranked second, is expected to import 6.3 million tons, down from 6.6 million tons last year.
Indonesian palm oil exports rose 22% in May, after a sharp fall in April. The country, which together with Malaysia produces 85% of the world’s global palm oil, does not issue regular data for the commodity.
Industry publication Oil World says that in May Indian soybean oil and sunflower seed oil imports more than trebled and doubled respectively, compared with year-earlier levels, while imports of palm oil and palm kernel oil fell 17%.
The outlook isn’t very encouraging for palm oil exporters. Some market analysts expect higher prices ahead, lasting well into 2015, further crimping sales, due to dry weather expected in coming weeks and months brought by the El Nino weather system.
During Ramadan, Muslims don’t eat or drink during daylight hours, but break their fasts after nightfall, with this usually contributing to higher palm oil use. Last year, when Ramadan started on July 9, in the three-week period June 1-20, palm oil exports from Malaysia, the world’s second-largest exporter, rose around 15%.
This year is different. Ramadan starts this weekend, but Malaysia’s June 1-20 exports are down between 5.8% and 8.6% on month-earlier levels and have been slowing since early May, cargo surveyors Intertek and SGS say. Traders blame a narrowing of palm oil’s price discount to rival edible oils, particularly soybean oil.
Citi Futures specialist Sterling Smith says the premium of soyoil to palm oil is around $127 a metric ton, below the one-year average of $132. Just two weeks ago on June 10, the differential was around $117/ton.
Palm oil prices rallied to an 18-month high in March 2014 due to very dry weather in major producing countries Indonesia and Malaysia, with this contributing to a narrowing in the premium, although the price of benchmark palm oil on the Bursa Malaysia has eased 17% since then. Chicago Board of Trade soybean oil prices meanwhile hit a fourth-month low in early June although they are now 5.1% higher year-to-date.
India, the world’s leading importer of palm oil, is a factor. From February to May in 2013, palm imports made up 80% or more of Indian edible oil imports, said Govindlal G. Patel, managing partner of G.G. Patel & Nikhil Research Co. This proportion dropped to 60%-65% from March to May 2014, he said, citing data from The Solvent Extractors’ Association of India.
There are around 177 million Muslims in India, third only in size to populations in Indonesia and Pakistan
“Traditionally, Indians use soft oils like groundnut or rapeseed for food. Palm oil is not grown in India and is primarily an import so when the price premium narrows, it encourages the consumptions of other oils,” said Mr. Patel.
The U.S. Department of Agriculture forecasts that India will import 8.3 million tons of palm oil the marketing year which started last October, unchanged from a year ago. China, ranked second, is expected to import 6.3 million tons, down from 6.6 million tons last year.
Indonesian palm oil exports rose 22% in May, after a sharp fall in April. The country, which together with Malaysia produces 85% of the world’s global palm oil, does not issue regular data for the commodity.
Industry publication Oil World says that in May Indian soybean oil and sunflower seed oil imports more than trebled and doubled respectively, compared with year-earlier levels, while imports of palm oil and palm kernel oil fell 17%.
The outlook isn’t very encouraging for palm oil exporters. Some market analysts expect higher prices ahead, lasting well into 2015, further crimping sales, due to dry weather expected in coming weeks and months brought by the El Nino weather system.