Palm oil futures hit four-month high as Black Sea tensions escalate
20.07.2023 (S&P Global) - Palm oil futures on Malaysia's commodity exchange closed up 3.9% at a four-month high MR4,043/mt ($888/mt) on July 20, driven by the breakdown of the Black Sea grain corridor, strong demand from key destinations and rising premiums of soybean and sunflower oils.
Crude palm oil futures mirrored sharp jumps in competing markets as tensions escalated between Russia and Ukraine, market participants said.
The escalating hostilities in the Black Sea were felt across markets July 19 as soybeans and soybean oil futures on the CBOT, ICE Canola and Euronext Rapeseed futures jumped sharply higher, Anilkumar Bagani, head of research at Mumbai vegetable oil brokerage Sunvin Group, said.
Russia said any ships traveling to Ukraine's Black Sea ports from July 20 will be seen as possibly carrying military cargoes, after attacks on Ukraine's port cities during July 18-19, destroying port and grain storage infrastructure.
Talks between the two countries, Turkey and the UN over renewing the Black Sea Grain Corridor have been unsuccessful.
The October CPO contract rose as high as MR 4,049/mt during trade on July 20 on the Bursa Malaysia Derivatives exchange. The contract, a benchmark palm oil price globally, was not traded July 19 on account of a market holiday in Malaysia.
Margins, demand push prices
Palm oil exports from Malaysia in July were expected to be about 20% higher month on month as China, the world's second-largest vegetable oil importer, has kept up a steady pace of purchases, trade sources said.
In Europe, palm oil prices supported rising premiums for soft oils overnight, Marcello Cultrera, a director at Singapore-based Apricus 8 Pte, said.
In CNF terms, RBD Olein [refined palm oil] was cheaper than soybean oil by $250/mt, sunflower oil by $137.50/mt and rapeseed oil by $300/mt. That, with improving European demand, presented a better opportunity for palm oil products compared to soft oils, Cultrera said.
In Indonesia, the largest producer and exporter of palm oil, the surge in futures prices as well as a government crackdown on corruption in the palm oil sector was set to support prices, analysts said.
Local media reports suggest that the government has searched and seized several ships and helicopters from various companies involved in palm oil trade.
That could delay Indonesian cargoes and push demand towards Malaysia, Sunvin's Bagani said.
Traders in Indonesia said the bullish sentiment will support physical prices.
Bid-offer levels in the FOB Dumai CPO market strengthened to $910-$920/mt for August loading and the CFR West Coast India CPO saw bid-offer discussions rise to $965-$970/mt for August loading, traders said.
On July 19, CPO FOB Indonesia was priced at $888/mt and CPO CFR West Coast India was priced at $935/mt, according to S&P Global data.