Palm oil stocks seen falling near 1.65 mt; long-term outlook still uncertain
08.04.2020 (Moneycontrol.com) - Malaysian palm oil futures (third month contract), which was ruling as high as 2,450 levels at March end, have dwindled by more than 200 ringgits in first four sessions of April, as coronavirus concerns have overpowered the lower stocks optimism.
Global demand for edible oil and all the major agricultural commodities are seen falling considerably this year as proliferation of the coronavirus has compelled all the major countries to put their business activities on a hold.
The 21-day lockdown declared by Prime Minister Narendra Modi has dragged the March palm oil imports drastically lower.
Overall edible oil imports in March declined by one third to less than 9.5 lakh tons. RBD Palmolein was the most impacted as it remains under restricted category since first half of January. Indian RBD Palmolein imports decimated to 30,850 tons compared to 3.1 lakh tons imported in March 2019.
Market participants are already projecting around 20-25 percent drop in Indian edible oil consumption this year, as shutdown of restaurants and eateries is likely to trim edible oil consumption.
Meanwhile, on the supply front, Malaysia has also extended the lockdown in the country till April 14. Whereas as per Gapki, the Indonesian government is not planning to reduce work hours for palm oil plantation as of now.
Market participants foresee palm oil stocks in Malaysia to reach 1.65 million tons in March, which will be down by 2 percent from previous month. Despite higher production, better exports last month and increased domestic consumption is likely to pull down inventories of palm oil in world's second largest producer.
Though we may see some rise in palm oil prices following recovery in Brent crude from recent low levels, we expect demand concerns to overshadow output disruption in the longer term.
After direct consumption demand, second parameter which influence the palm oil prices are Brent crude. Brent crude has remained largely volatile since a price war was triggered between the major producers. Brent crude, which nose-dived to nearly two decades low, in last week of March, has rebound by over 50 percent since then. However, meeting between OPEC & Non-OPEC members which is tentatively postponed to April 9th, is likely to decide the future course of oil prices.