W38: Palm Oil Update

In W38 in the palm oil landscape, palm oil futures on the Bursa Malaysia Derivatives Exchange exhibited fluctuations and declines. On September 18, the Dec-23 palm oil contract closed 1.98% lower at USD 800.94 per metric ton (mt), following three consecutive sessions of gains. This decline was influenced by weakness in Dalian palm oil and Chicago Board of Trade (CBOT) soybean oil. The downward trend continued on September 19, with palm oil futures dropping by 1.15% to USD 790.36/mt, extending losses for a second session due to losses in rival vegetable oils. On September 20, Malaysian palm oil futures decreased by 0.3% to USD 796.68/mt, primarily attributed to weaker rival edible oils and a prior drop in palm oil exports from September 1 to 15, which fell by 11.8% month-on-month (MoM) to 580,893 mt. On September 21, palm oil futures reached their lowest level in over a week, declining by 1% to USD 785.62/mt, as weaker crude and rival edible oils outweighed support from strong exports and a softer ringgit. From September 1 to 20, palm oil exports increased by 2.4% MoM. The futures continued to trade near a three-month low and were on track to post their third consecutive weekly loss, with a 2.6% decline for the week.

Malaysia will double palm oil exports to China to 500 thousand mt per year amid European Union (EU) restrictions on the supply of goods. As part of it, representatives of China and Malaysia signed investment agreements worth USD 4.2 billion. Additionally, Malaysia is in the process of reviewing an existing windfall profit tax for the palm oil industry, with hopes of completing the revision next year. Currently, Malaysia imposes a 3% windfall profit tax on palm oil prices exceeding USD 640.27/mt in Peninsular Malaysia and USD 746.99/mt in Sabah and Sarawak, the country's top palm oil-producing states.

Indonesia has established the benchmark crude palm oil price at USD 798.83/mt for the second half of Sept-23, which is lower than the price set for the first half of the month. Despite this adjustment, the export tax and levy have remained unchanged at USD 33/mt and USD 85/mt, respectively. Despite being the world's largest producer and exporter of palm oil, Indonesia's palm oil industry suffers from low productivity. Currently, Indonesian palm oil farmers, who make up 42% of the industry, have a substantial productivity gap compared to palm oil companies. The People's Palm Oil Rejuvenation (PSR) program, especially the partnership route, is seen as a critical solution to bridge this gap and enable the industry, which is a significant contributor to the Indonesian economy, to maximize its potential and benefit the nation's welfare. Indonesia's palm oil productivity is currently at 3 to 4 mt per hectare (ha), equivalent to crude palm oil (CPO).

Lastly, in Aug-23, India's palm oil imports increased by 4% MoM, rising from 1.09 million metric tons (mmt) to 1.13 mmt. This import figure also represents a substantial 13.7% year-on-year (YoY) increase. Additionally, India's palm oil reserves stood at 1.46 mmt during the same period. The average price for crude palm oil at Indian ports, calculated on a CIF basis, was USD 924/mt.

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