Palm oil prices could rise in the near term after Malaysia’s official July data showed a steep dip in inventories at end-July along with lower production even as most market participants expected stocks to rise marginally or stay flat.
Palm oil stocks fell to 1.49 million mt at the end of July, down 7.3% on the month, according to Malaysian Palm Oil Board, or MPOB, data on Aug. 11.
In its palm oil stock preview ahead of the MPOB data release, an S&P Global Platts survey of 13 industry analysts, traders and executives showed that palm oil stocks would likely grow marginally on the month to 1.62 million mt at end-July.
Malaysia is the second-largest producer and exporter of palm oil after Indonesia.
“We have seen prices breaking key resistance level of MR4,334/mt ($1,022.3/mt) in morning session. Expect BMD CPO futures to challenge the recent high of MR4,498/mt ($1,060.9/mt),” Anil Kumar Bagani, research head at Sunvin Group, an India-based veg oil brokerage said.
In India, the most active crude palm oil contract for August rose 13 points to Indian Rupee 1,161 ($15.6) on the MCX after the release of the MPOB data. CPO contracts on the MCX are specified for 10 kilogram lots.
According to Platts price assessments, crude palm oil CFR West Coast India prices rose 10% in a month to $1,172.5/mt on Aug. 10 from $1,067.5/mt on July 12.
Sluggish production
MPOB data showed that palm oil production in July fell 5.1% to 1.52 million mt on the month and was largely in line with expectations of the Platts survey.
While June-July is typically the start of peak production season in Malaysia, lack of foreign workers at plantations due to pandemic-led border controls has hit production hard, especially in the districts of Johor and Sabah, a trader told Platts.
Terming the production numbers as a “huge surprise”, Paramalingam Supramaniam, director at Pelindung Bestari Sdn Bhd, a Kuala Lumpur-based brokerage, said that “with the delay in harvesting and Covid threat, prices have a potential to remain defensive with an upward bias.”
“The [MPOB] report is bullish for palm oil market as the 2021 palm oil production at Malaysia is continued to see in trouble and MPOA now estimating it at 18 million mt, down from 19.14 million mt in 2020,” Bagani told Platts.
The Malaysian palm oil industry is heavily reliant on foreign workers, mainly from Bangladesh and Indonesia, who constitute almost 80% of the labor force.
With foreign workers unable to return to plantations as well as stricter movement controls within the country due to a fresh wave of coronavirus infections, analysts are downsizing their estimates for palm oil production this year.
Malaysia’s palm oil exports in July fell 0.8% to 1.41 million mt from a month before but were higher than the expectation of 1.35 million mt estimated in the Platts survey.
In August, market participants are expecting Malaysian exports to dip as its largest buyer, India, has started purchasing larger quantities of palm oil from Indonesia after Jakarta cut its export duty on crude palm oil.
Malaysia’s Aug. 1-10 export estimates were 10%-12% down but the market sentiment was still bullish, one analyst told Platts.
Source: Platts