Malaysia’s Palm Oil Begins H2-2023 Higher on Production, Stocks and Exports.

Malaysia's crude palm oil production increased from 1.44 million metric tons (mmt) in June to 1.61 mmt in July, according to the Malaysian Palm Oil Board (MPOB). This is not surprising as July is the start of the season when production changes from low to average and high. However, the rate of the month-on-month (MoM) increase in July this year is what signals a different market momentum: output rose by 11.2% to 162 thousand metric tons (mt)MoM in July, the biggest MoM growth since 2019 and well above initial estimates of 1.56 to 1.58 mmt.

Due to the seasonal trend, the market will continue to move in that direction. But crude palm oil output into this quarter will see a steady rise, peaking towards the fourth quarter of the year. This should aid in keeping market prices down, but that would be temporary.

On the demand side, an uptick in demand would help clear out inventories in Malaysia and Indonesia. In addition, demand from Europe will also rise as the weather gets warmer, incentivising the use of palm oil for biodiesel production at this time of year. These would all support palm oil prices, in the end clearing out the discount that palm oil is enjoying vis-à-vis its rival oils.

Now that direct factors are established, attention should also be paid to the movement of the Malaysian ringgit versus the United States (US) dollar: the latter has been firmer recently against the US Dollar, making crude palm oil prices somewhat less competitive than other rival oils. That said, whatever happens to the rival oils would permeate the palm oil market for the rest of the season.