POLL-Palm prices seen falling 23% in 2023 as output rises, but Indonesia to keep supply tight
19.01.2023 (Nasdaq) - KUALA LUMPUR, Jan 19 (Reuters) - Malaysian palm oil prices are set to fall for the first time in three years in 2023 amid a mild recovery in production, but will likely remain above pre-pandemic levels as Indonesian policies constrict global supplies, Reuters poll showed.
Benchmark palm prices FCPOc3 will average 3,800 ringgit a tonne in 2023, down 23% from last year's record average of 4,910 ringgit, according to the median estimate of a poll of 18 analysts and those in the industry.
"The Russia-Ukraine conflict and economic affects of the pandemic will continue to impact the market in 2023. However, we feel that the severity of the volatility will be less as compared to the last year," Malaysian Palm Oil Council marketing director Faisal Iqbal said.
SLOW PRODUCTION
Top producers Indonesia and Malaysia are expected to see a marginal rise in production just as global demand is forecast to rise, with China relaxing its COVID-19 restrictions and India increasing imports. China and India are the world's biggest palm oil buyers.
Production in Indonesia is forecast to rise 2.4% to 48 million tonnes this year, from an estimated 46.87 million tonnes last year.
Malaysia's production is seen at 19 million tonnes, up 3% from 18.45 million tonnes last year, as the government takes steps to alleviate a damaging labour shortage.
Analysts said recent rainy weather will boost productivity in the second and third quarter, but lower fertilizer application in 2022 will limit any significant production growth.
INDONESIA POLICIES
Analysts said moves by top palm oil exporter Indonesia to restrict shipments and boost domestic biodiesel consumption will provide some support for prices given already tight global vegetable oil supplies.
Jakarta's move to a higher 35% palm oil biodiesel blending mandate, the highest in the world, will increase demand for the edible oil even as discretionary blending declines with higher palm oil prices relative to diesel, said Faye Loo, economist at LMC International.
"Even with higher output, Indonesian crude palm oil exports are unlikely to grow much in 2023. This allows Malaysia to export more if they can price themselves into the markets," Loo said.
Global supplies are expected to tighten over the next six months as palm oil remains at a large discount compared with competing soft oils, but stocks are likely to recover towards the end of 2023, she said.
Investors will also be monitoring the pace of recovery of China's demand, global recession jitters, and the impact of a potential El Nino on global edible oil production.
Malaysia crude palm oil futures prices vs Reuters poll resultshttps://tmsnrt.rs/3CU5TrV
Indonesia and Malaysia crude palm oil production estimateshttps://tmsnrt.rs/3CYBCrU
(Reporting by Mei Mei Chu in Kuala Lumpur, Rajendra Jagdav in Mumbar, and Bernadette Christina in Jakarta; Editing by Kim Coghill)
((meifong.chu@thomsonreuters.com; +603-2333-8005; Reuters Messaging: @meixchu on Twitter))