Both palm oil futures and the nearby delivery prices have tumbled over time on positive fundamentals news, recession fears, and some effectively forceful selling from Indonesia. The Malaysian palm oil futures have fallen to RM 4199/mt, the lowest since July 2021.
Only a week into July, the palm oil futures have lost (-862) ringgit. The price has broken below the 4100 Malaysian ringgit mark which causes some concern that prices may continue to go further down testing support at the 4000 ringgit psychological level.
Palm oil was traded higher at the beginning of the year owing to floods across Malaysia and Indonesia, causing production and inventories to fall. Adding to the price pressure were border restrictions and labor shortages which limited full-scale harvesting in the two top producer countries. On the back of other bullish sentiments, Tridge analyst gave indications prices will be in the bullish territory at least towards the end of the first half of 2022.
Palm oil has taken a different direction in the second half of this year. Indonesia, the biggest producing country of palm oil, has increased its export quota amid rising production. Under its Domestic Market Obligation scheme, the Indonesian government has given licenses worth 2.4 million mt to exporters and reduced the export tax rate - these have been bearish for the market.
Currently, both south-east Asia producing countries are in the season of average production, and inventories have already been forecasted to reach above year-ago levels. In Malaysia, sources say palm oil stock in June is likely higher YoY than the 0.79 million mt in the same month the previous year.
The bleak global macroeconomic outlook and a crush on some commodity prices are creating fears among trading desks across the globe. This is causing some exits and fund selling helping to push prices of the tropical oil lower. A dip in the crude oil process earlier on in June also reduced palm oil’s appeal as a biofuel.
The continued output growth in Indonesia will continue to keep the market on the downside with the supply situation in other edible oils especially substitute oilseed sunflower oil the chief factor of any potential upside risk.
Entering the average production and towards the peak production cycle, the market needs a non-conventional factor to cause some upside risk. Currently, however, that seems not to be on the horizon and the picture looks bearish.