Weekly: Spot RBD Palmolein To Trade Steady To Firm Next Week

MUMBAI (Commoditiescontrol)-

Malaysian Palm Oil Futures

Malaysian palm oil futures fell more than 1 percent to the lowest level in a year and a half on Friday evening on the prospect of Indian importers cancelling shipments after an increase to import duty last week and forecasts of higher production in March.

Palm oil prices have dropped more than 5 percent since last Thursday after top edible oils importer India raised import taxes on the vegetable oil to their highest in more than a decade.

The benchmark palm oil contract for May delivery on the Bursa Malaysia Derivatives Exchange during the week ending 9th March was down by 5.16 percent at 2,371 ringgit a tonne.

The market is down on the back of cancelled shipments from India. The market is awaiting export figures; India demand will be crucial.

Indian importers are seeking to cancel up to 100,000 tonnes of crude palm oil cargoes after costs were boosted by the higher duty, adding that April imports were likely to be substantially lower.

Overall exports from Malaysia are forecast to drop 11.9 percent to 1.33 million tonnes in February, according to a Reuters survey of eight traders, planters and analysts.

There are expectations of rising production (in March). Some preliminary figures already suggest that.

Meanwhile, February production is seen declining by 12 percent to 1.4 million tonnes, with stocks seen down 6.9 percent at 2.37 million tonnes.

On the other hand General sentiments from speakers and audience at the recently concluded POC 2018 conference spoke of rise and surplus palm production, anchoring prices with limited upside potential.

Speakers acknowledged that the rate of productionrise seen last year, 2017 versus 2016 will not be repeated in 2018. Production rise for Malaysia was largely pegged rising to 20.5 to 21 million tons from 19.92 million tons, while Indonesia production was seen rising to 38 to 39 million tons in 2018 from 36.80 million tons in 2017.

On prices estimates Mr. Dorab Mistry of Godrej International pegged prices rising from RM 2,500 to RM 2,700/ton by June and CPO CIF Rotterdam basis rising up to US$ 750/ton.

While Mr.Thomas Mielke of Oil World see potential upside of RM 2,700 if Ringgit weakens or production does not rise as expected. He see’s prices bottoming at RM 2,350/ton based on fundamentals.

Dr. James Fry of LMC International, expects prices to rise briefly up to RM 2,600/ton as palm stocks fall but will gradually slip to RM 2,300 by July and subsequently pushing prices lower to RM 2,200/ton as the CPO export taxes are restored. He also highlighted that rising stocks will hit Malaysia CPO on FOB basis fairly quickly after June, pushing prices lower to US$ 600/ton and then below US$ 575 in October to December quarter of this year.

However if Indonesian steps up spending in biodiesel consumption prices are likely to stay higher than the suggested level, he added in the final presentation on the closing day.

Further, MPOB report which is on 12th of March is likely to give further direction to palm oil market.

Fall in production and exports at about the same pace, is likely to send end-month stocks lower for second month in a row in February, declining by 150,000 to 180,000 tons to 2.37 to 2.40 million tons. With all estimates pointing to a fall in February export, the impact of Malaysia CPO export tax suspension will be assessed. Export suspension is due to expire on 7th of April.

Domestic RBD Palmolein Scenario

RBD palmoelin price during the week ending 10th March gained by Rs 45 to trade at Rs 710/10kg at kandla port on account of rise in import duty of the commodity. However CIF price has declined by $40 to trade at $665/MT due to sharp fall in Malaysian Palm Oil Futures.

As the rapeseed harvest in India begins, the country has chosen to hike its import taxes on palm oil yet again, defying Malaysia and Indonesia’s efforts to have the duty reduced. The fourth increase in six months, crude palm oil imports now attract an import tax of 44%, up from 30%, and refined palm oil at 54%, up from 40%. Meant to support local farmers, millers and refiners in the crucial pre-monsoon buying season, this is double blow for palm oil demand in India as sunflower and soybean oil import taxes were reportedly not raised.

In recent months, Indian sunflower and soybean oil imports have gained tremendously in growth terms from a small base according to the Solvent Extractors’ Association of India. Although palm oil will still remain the largest component of imported edible oils, this latest development should see its market share decrease amid an overall decrease in edible oil imports. This also nullifies the positive effects of Malaysia’s scrapping of its palm oil export duty, which was in part introduced to counter the Indian import tax hikes in November and December 2017.

Malaysia and Indonesia count India as the main export market destination, although Indonesia commands a much larger RBD palm olein market share of 80%. Therefore the impact of tariff increase to a marginal reduction in volume will be felt greatly in Indonesia, compared to Malaysia. According to market source an estimated 441,000 tons of olein was displaced in the span of four months, following the tariff increases up to 2 February. However the latest increase look set to displace a further 200,000 tons making Indonesia and Malaysia to lose 641,000 tons of olein shipment from October to March.

Demand of RBD palmolein in domestic market is slowly improving as temperature in northern parts of India is slowly rising to above normal which is suitable for RBD palmolein consumption.

However the pric gap between the soy oil and RBD palmolein has reduce due to hike in import duty so most of the refiners are likely to use less RBD palmolein for blending purpose which might cap the gains of RBD palmolein.

NEXT WEEK: RBD palmolein prices are likely to trade steady to firm next week.