Export Prices of Malaysian Processed Palm Oil Products Trade Downwards into 2023

The monthly export prices of processed palm have seen weakness across the complex. Prices published by the Malaysian Palm Oil Board saw RBD Palm Oil lose (-$397.50) YoY to the current January 2023 price of $925.5/mt. RBD Palm Olein has also seen similar price action losing (-$382) YoY to be assessed at $944/mt in January.

Buyers of Palm Stearin who took positions in the product in January bought it significantly lower than prices a year ago at $908/mt down (-$527) YoY. Palm Fatty Acid Distillate otherwise known as PFAD, a processing residue product derived from the refining of food-grade palm oil for the food and chemical industry uses is also down (-$527.5) YoY to $743.5/mt.

Looking at the prices just over a year ago and where they are now and all trading an average of 33% below year-ago levels has got the market asking the question of what the drivers are. Tridge’s own analysis provides the answers!

From July 2022, unlike in the two years before, export prices of all products began weakening and remained so towards the end of the year. An export boom from the second half of the year could explain the bearish trend in palm oil export prices. Putting additional pressure was the gradual slump in crude oil prices within the same period which undermined the former’s appeal as a biofuel feedstock. The prices moved lower toward the second half of 2022 bucking the trend seen in previous years, and so the expectation of the market was that export prices will begin to recover.

The increased belief among some market players that prices reached their bottom in December turned out not to be entirely true after all. Currently, the fundamental picture seems to be supporting a continuous weakness in prices. Palm oil production in January 2023 is the highest record in four years. Recent data published by the MPOB put the crude palm oil production figure at 1.38 million mt, 5 thousand mt higher than the 5-year average and 10% higher than production in January last year.

Adding to the bearish dynamics are crude palm oil stocks in Malaysia which registered an increase in January coming in at 1.2 million mt. Making this a massive recovery in the month of January since 2019 when inventories were at 1.8 million mt. Processed palm oil stock is currently in the region of 1.2 million mt a whopping 32% on stocks the same month in the previous year.

At present, demand continues to be at its tail end and lagging. An expectation of a recovery in prices amid news of top producer Indonesia looking to raise its crude palm oil reference price in December caused buyers both within manufacturing and the food services sector to take sufficient cover toward the end of last year. Most buyers are now mostly covered so the market may not see any brisk buying and activity going into the end of the first quarter of 2023.

Prices are thus expected to keep steady to lower throughout the first two quarters of the year amid the positive fundamental picture and some sort of uncertainty surrounding demand. Into the second half of the year, however, bullish La Nina indicators are expected to dampen production output and keep prices elevated.