Palm oil long-term outlook cautious over global demand worries
Money Control (08/07/2020) After posting more than 7 percent losses in the last week of June, palm oil's third month futures at Kuala Lumpur surged by more than 5 percent in the last four sessions to settle a tad lower than 2,400 Malaysian ringgit (MYR) per tonne mark on July 6. Optimism over recovering global edible oil demand and lower stock prospects in Malaysia lifted palm oil considerably.
Traders expect Malaysian palm oil exports in June to have increased by around 25 percent from the previous month. As a result, country's stock by the end of June is estimated to have declined by around 5 percent from the previous month at near 19.4 lakh tonnes.
In addition, a good run in CBOT soy oil, which settled above 29 cents/pound levels after nearly four-months, has also added to the positive sentiments in edible oil. The lower-than-market expectation in soybean sowing area in US and stark reduction in US Soybean stock estimates by USDA have lifted soy oil prices in Chicago futures.
Gapki (the Indonesian Palm oil Association) has pegged country's palm oil stock at the end of May at 6.5 percent lower than the previous month.
All these looks too prominent to support palm oil prices in the coming weeks. However, falling dependence of India on palm oil is drawing a different picture for crude palm oil (CPO) in the long term.
As per SEA data, the share of palm oil in India’s edible oil import in the first six months of 2020 season (November- April) has reduced to 53 percent compared to 64 percent in 2019 season.
The share of sunflower oil has increased to 24 percent against 19 percent last year and soy oil share increased to 22 percent from last year’s 17 percent.
India’s total ban on refined palm oil imports since January was the primary reason behind lower Indian palm oil imports.
However, at a recent webinar, a spokesperson of the ministry of agriculture (as per commoditiescontrol.com)) hinted that to avoid edible oil dumping in India by neighbouring countries, the government is mulling to restrict imports on refined edible oils, while it may also consider to cap imports of crude soy oil.
Ahead of new soybean crop arrivals, in the second half of September, the government may implement the decision to avoid price crash in oilseeds, which could turn out to be prejudicial for edible oil prices in international market.
Besides, the increase in COVID-19 cases in the home country and subsequent demand destruction of edible oil demand in India might cap global edible oil prices in long run. To conclude, we may see some more price rise in BMD CPO on anticipation of lower stocks in Malaysia in June but long term outlook still remains cautious due to worries over global edible oil demand.