Mumbai (Commoditiescontrol) – Indian palm futures witnessed dull trade during previous week with lack of any strong positive fundamentals amid weakness in global palm market. By the end of Week, benchmark April’19 contract, finally settled at INR 525.9, marking loss of 4.2 points compared to previous week close of INR 530.1 per 10 kg.
As per Industry sources, ‘Indonesian Palm Oil Board (IPOB)’, the ‘Solvent Extractors Association (SEA)’ of India and non-profit organization ‘Solidaridad Network’ are in talks to propose incentives on shipments of palm oil certified by Indonesia Sustainable Palm Oil (ISPO). The groups aim to propose an import tax cut for Indonesian palm oil shipments to India.
India, the world's top vegetable oil importers, has cut taxes on palm oil import earlier this year. But the tax imposed on palm from Indonesia, the world's top exporter, was higher than those imposed on Malaysia. The Indonesian government has offered opening-up market for Indian raw sugar in exchange for lower tax on Indonesian palm oil.
At Malaysian front, Output is expected to be higher by 5 to 7% according to seasonal increase, however lack of rainfall in key oil palm areas in peninsular Malaysia and northern Sabah for most of March could hamper yields and sap production dragging March output lower for the first time. SPPOMA and MPOA values suggest a lower production month compared to March of last year and previous month.
Malaysian exports are seen rising 6 to 10% but estimates from cargo surveyors offered a wide diverging assessment of 1-25 March export values versus 1-25 February. SGS pegged a rise of 12.39%, while Amspec and ITS was muted at 1.70% and 1.28% rise respectively.
Malaysia end month stocks is the critical variable for price guidance. Stocks been lingering above 3 million tons since November of last year. Local disappearance or domestic consumption is expected to show a robust rise on account of Ramadan fasting month demand, luring local retailers to stock up in March. Ramadan begins in the first week of May and will last for a month.
At Indonesian side, Bloomberg has published the Indonesian palm supply demand estimates where end-month stocks are seen falling by 7% to 2.80 million tons or 18 months low, dipping below Malaysian stocks for the first time. Malaysia February stocks are currently at 3.045 million tons or 23% higher than the same time last year, while Indonesia stocks look set to fall 20% below February of last year. Exports are seen falling 16.10% to 2.730 million tons following displacement by Malaysian exports to key market, India in February. Production is also predicted to fall by 19% to 3.540 million tons inline with seasonal pattern but made worse by adverse weather outlook. Meanwhile, domestic consumption is expected to slowdown by 1.20% to unchanged at 1.350 million tons after no new biodiesel mandate policy was announced.
The palm oil sector is currently facing a double whammy, softening prices in the wake of rising production and inventory, and concerted attack from West-based environmentalists for large-scale deforestation. Recently, the European Commission (EC) concluded that palm oil as a transport fuel must be phased out as the commodity’s cultivation is seen causing excessive deforestation. In many countries, including Europe, palm oil is converted into bio-diesel and blended with mineral diesel in an attempt to promote renewable fuel as an alternative to mineral oil.
Stung by the pressure from Europe, the two principal producers, Indonesia and Malaysia, ought to explore is to engage constructively with large importing nations such as India and China. Unfortunately, both Malaysia and Indonesia have been treating India merely as a large market for supply of palm oil in bulk. India has been importing palm oil from Malaysia for at least 40 years now.
Looking at the overall sentiments, fading palm demand from most of the nations, huge inventories at Malaysian front and bulk RBD palm olein imports in India shall continue to keep overall palm prices on bearish note.
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