W45: Palm Oil Update

Published Nov 18, 2023
W45: Palm Oil Update

In W45 in the palm oil landscape, palm oil futures on the Bursa Malaysia Derivatives Exchange exhibited fluctuations. On Monday, November 6, the Jan-24 palm oil contract decreased by 0.42% to USD 795.25 per metric ton (mt), influenced by a strengthening Malaysian ringgit and expectations of a 7.13% month-on-month (MoM) rise in Oct-23 inventories. Palm oil futures continued to decline by 0.9% on Tuesday, November 7, closing at USD 788.26/mt. This drop was due to growth in palm oil production exceeding the market estimate of a 2 to 3% increase. On Thursday, November 9, palm oil futures experienced an additional 0.6% decrease, reaching USD 793.56/mt. This decline was attributed to signs of deflation in China, with the market awaiting key official domestic supply and demand data for further direction. However, by Friday, November 10, palm oil futures had rebounded to USD 799.70/mt. This increase was driven by a recent surge in China's purchase of up to 1.04 million metric tons (mmt) of United States (US) soybeans, indicating robust demand from the Chinese market.

Global palm oil production, which accounts for a significant share of the edible oil market, will grow by 200 thousand mt to 300 thousand mt in the 2023/24 marketing year (MY), the lowest growth rate in the last four years. This decline is exacerbated by the persistent hot and dry conditions expected to persist into early 2024, affecting top producers in Indonesia and Malaysia. As a significant component of the edible oil market, this limited production is expected to drive palm oil prices up by at least USD 100/mt over the next four to six months.

In the period from July 1 to November 2 of 2023, European Union (EU) countries saw a 3% year-on-year (YoY) increase in their oil imports, totaling 2.39 mmt, according to a report from the European Commission (EC). However, during the same four-month period, the EU received 1.19 mmt of palm oil, reflecting a 10% YoY decrease in palm oil imports.

At the end of Oct-23, Malaysia's palm oil stockpiles reached a four-year high, increasing by 5.84% month-on-month (MoM) to 2.45 mmt, according to data from the Malaysian Palm Oil Board (MPOB). This marks the sixth consecutive month of stock increases for the world's second-largest palm oil producer, with the last similar level recorded in September 2019. Moreover, crude palm oil production also increased by 5.89% MoM, reaching 1.94 mmt, while palm oil exports rose to 1.47 mmt.

Malaysia's crude palm oil production for 2023 is forecasted to be in the range of 17.9 mmt to 18.5 mmt. The MPOB anticipates reaching 18.5 mmt in 2023, a slight increase from 18.45 mmt in 2022 but lower than the earlier projection of 19 mmt. The price of palm oil is expected to reach USD 847.82/mt by year-end due to robust demand and limited supplies, as stated by a government-industry body on November 7. On the other hand, the Palm Oil Refiners Association of Malaysia (PORAM) expressed concerns that annual production could decline to 17.9 mmt, citing lower yields from aging palm trees.

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