NEW DELHI (Commoditiescontrol) - Palm oil prices have nearly bottomed out and likely to start recovery in the near-term due to seasonal downtrend in production, but record inventory will cap any large gains.
Meanwhile, the ongoing heavy rains are disturbing palm oil supplies at origins. Malaysia palm oil production for December is expected to fall by 10-11% to 1.62-1.64 metric million tonnes (MMT) from 1.84 MMT in the previous month, while in Indonesia it may remain down by 10% to 3.17 MMT vs. 3.52 MMT in last month.
Furthermore, this downtrend in production is likely to continue in January and February 19, along with rise in demand from China and India due to replenishment of inventory. In addition, festive demand from china may also be a supportive factor.
As of December 7, Chinese palm oil stock at domestic ports stood at 452,200 tonnes, up by 7.8% from 419,600 tonnes last week and even higher by 12.3% from 402,600 tonnes month-on-month. Nevertheless, it is down by 13.2% from 521,000 tonnes year-on-year.
At Indian front, imports are likely to stay slower through December, on an anticipated drop in import duty for palm oil from new year. As of November, the total palm oil port stocks (CPO + Olein) are estimated around 455 thousand tonnes vs 550 thousand tonnes a month ago and 421 thousand tonnes a year ago. Stocks have been turning tighter over the last few months due to slowing imports.
Shipment from Indonesia are getting delayed because bill for 0% levy is not yet passed.
Major analysts are also expecting an upside move in the days to come.
As per an analyst, palm oil inventories in Malaysia - the world's second-largest grower - have surged to the highest ever, signalling that prices of the commodity used in chocolates and lipsticks may be set for a rebound, similar to what occurred in November 2015.
The record stockpiles may indicate prices had bottomed out. Still, any gains would be capped by sluggish exports that had led to higher reserves and that might continue through this month as Malaysia struggled to compete with Indonesia, he said.
Malaysia's crude palm oil (CPO) production could slow further over the next few months due to the seasonal monsoon period, another analyst opined.
The current low CPO price is unlikely to be sustained in the first quarter of next year when seasonal production declines. Global palm oil consumption will likely be in excess of production and thereby reduce stocks," it added.
The Malaysian CPO production last month declined 6.1 per cent month-on-month to 1.85 million tonnes.
The average Malaysian Palm Oil Board locally-delivered CPO price last month stood at RM1,830.50 per tonne, down by 12 per cent month-on-month.
(By Commoditiescontrol Bureau)
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