Weekly: Spot RBD Palmolein Declines on Weak Global Cues & Sluggish Demand

MUMBAI (Commoditiescontrol) - Malaysian palm oil futures closed 4.15 percent lower during the week ended on 13th April, logging their sharpest weekly decline in four months as Malaysia said it would resume an export tax and on expectations of slowing demand growth.

Malaysia, the world's second largest palm producer and exporter, said it would resume export duties on crude palm oil after four months of tax exemptions.

The country would set its crude palm oil export tax at 5 percent for May, according to the Malaysian Palm Oil Board, citing the national customs department.

A forecast of slowdown in export growth is also weighing on the market, as shipment data from cargo surveyors scheduled for release on Monday. Palm oil shipments rose 25-32 percent during the April 1-10 period - SGS.

In other news, MPOB released its Supply & Demand report on 10th April. Malaysia March end-month stocks fell by 6.24% erasing 1,54,730 tons from February, to record the lowest level in 5 months even as the rate of export outstripped production gains by just 2%. Exports rose by 19% to 1.565 million tons from February in line with market expectation of 20%, while production rose by 17.21% to 1.574 million tons, a higher than expected rise of 6 to 14%.

All figures in million tonnes, except imports

March export is critical as palm goes into higher production cycle in the second quarter after the lull season from November to February. A slowdown in exports, will quickly re-built stock levels. Malaysia has been battling to reduce the swelling stocks levels after it reached a 2-year high in December to 2.732 million tons.

March export performed the best in months, rising by fastest pace in 19 months, adding 252,181 tons, buoyed by large CPO shipment mainly destined to India. CPO exports jumped after traders took advantage of CPO export tax exemptions which put Malaysia CPO at competitive pricing to Indonesian on FOB basis. Malaysia CPO was trading at US$ 5 to 15 discount to Indonesia’s from January to March. Malaysia CPO export surpassed RBD palmolein for the second month in March, according to SGS data, as the relatively higher Indian import tariff on refined products, kept refined products at bay, prompting crude product like CPO to rise to the country.

Malaysia CPO export tax exemption is now extended to end of April. Initial assessment of April export outlook, show a promising repeat of March performance but production rise at a faster rate in Q2.

The data is seen as bearish on prices underpinned by production rise and slower depletion of stocks.

Domestic RBD Palmolein Scenario

RBD palmoelin price during the week ended on 14th April declined by Rs 10 to trade at Rs 715/10kg at kandla port on poor domestic demand coupled with weak global cues and also CIF price edged lower by $27.5 at $665/tonne.

The demand of commodity has declined at higher price level. Also the temperatures are gradually rising due to onset of summer season so consumption of edible oils may decline in coming days as people don’t like to eat fried foods.

The discount of RBD palmolein to soy oil has dropped to Rs 40/10kg post duty hike on 1st March, from Rs 85/10kg, prior to duty hike which is also weighing on market sentiment. It seems that RBD palmolein demand is gradually shifting to soy oil.

Most of the markent participants are of the view that use of RBD palmolein for blending may decline due to lower price gap with other premium oils.

However sharp fall is not expected as the import of RBD palmolein is in disparity.

Meanwhile stocks at ports rose to 1,13,857 tons as on 9th April vs 72,779 on 26th March, though sufficient to meet the near term requirement.

NEXT WEEK: RBD palmolein prices are likely to trade steady to week on weak fundamentals.