Malaysian palm oil end stocks in July could rise slightly on the month, with production and exports expected to retreat by around 5%, an S&P Global Platts survey showed.
Palm oil production in July was pegged at 1.526 million mt, down 4.9% from June and 16% lower year on year, according to the median of 13 estimates in a Platts survey of traders, analysts, and producers.
“The highest production month in 2020 was June, and some are worried a similar production pattern will emerge this year. However, I think peak production could be as late as October” said a trader.
The trader added that other than labor issues, which have hogged the spotlight since early 2021, heavy rains have also delayed harvesting activities.
Ending stocks at the second largest palm oil producing country are expected to reach 1.62 million mt in July, up a marginal 0.6% from 1.61 million mt recorded in June, according to the Platts survey.
Official data for July will be released on Aug. 11 by the Malaysian Palm Oil Board.
Labor issues remain at forefront
Labor-related issues have been highlighted as the primary reason for lower production of palm oil in Malaysia in 2021, as foreign workers employed in plantations had returned to their respective countries, and are now unable to return to plantations due to the severity of the pandemic in the country.
Not only has the border remained closed, a freeze on the hiring of foreign workers has also been imposed.
The Malaysian palm oil industry is heavily reliant on foreign workers, who constitute almost 80% of the labor force.
In Malaysia, daily new cases of COVID-19 infections reached 20,000 for the first time on Aug. 5. Moderna’s vaccine has been granted conditional approval for emergency use.
“While a return to normalcy does not seem to be on the radar yet, hopefully vaccination rates will be increased,” a source said.
Slump in exports
Exports could be lower by around 5% on the month and 25% on the year at 1.35 million mt, not as robust as previously hoped despite the lowered import duty on crude palm oil in India.
With the concession only expected to be in place till the end of September, market observers expect an uptick in Indian demand for both August and September.
Exports from Malaysia likely retreated in the wake of Indonesia’s decision to lower the July export levy and duty, clawing back some of its market share. Additionally, after the Indian government lifted restrictions on refined palm oil products, Indian buyers have been purchasing more competitively priced Indonesian refined products, sources said.
“Export to India is likely to see a fall to a five-month low, following tax adjustments in India and Indonesia particularly affecting CPO sales,” Sathia Varqa, co-founder of Singapore-based Palm Oil Analytics, told Platts.
“Protracted battle in curbing COVID-19 cases will continue to see a sharp increase in the usage of products like sanitizer, hand wash, soap and other personal care hygiene products manufactured using oleo-chemicals. July will see the highest oleo-chemical export to the EU in multi-years,” Varqa added.
Source: Platts