MUMBAI (Commoditiescontrol) - Palm oil market traded weak during last couple of months with the burden of huge carry forward stocks reported both at Malaysian and Indonesia front in the beginning of 2019. As per MPOB reports, the ending stocks at Malaysia in Jan and Feb 2019 were observed close to 3.0 and 3.04 million tons. Similarly, GAPKI in Jan’19 stated Indonesian stocks at 3.02 million tons.
However, the overall price trend reversed when GAPKI recently stated Indonesian Feb’19 stocks falling to 2.5 million tons, much below the market expectations of 2.8 million tons and depicting a strong fall of 17% on monthly basis. Though the exports in Feb’19 from Indonesia was down by almost 11%, the domestic consumption in Indonesia rose by 17% on m-o-m basis. The expansion of 20% mandatory biodiesel usage supported rise in consumption trend.
Stock to Use Analysis
The total stock of Malaysia and Indonesia in Jan’19 was at 6025 thousand tons which has declined by 8% in Feb’19 to 5547.5 thousand tons. Moreover, the total consumption (export and domestic demand) of Malaysia and Indonesia was at 6650 thousand ton in Jan’19. During Feb’19 total consumption declined by 10% to 5995 thousand tons. .png)
With relatively more decline in consumption compared to stocks, stock to use ratio improved by 2% in Feb’19 to 0.92 vs. 0.90 levels observed in Jan’19. However, the same is much below last 15- month data, where the stock to consumption ratio always hovered above 1.02 levels. Also, present S/c ratio is much below last 4-yrs average of 1.28 levels.
As of now palm market has over reacted negatively merely looking at total stocks figures specifically at Malaysia which was above psychological level of 3-million tons. The market hasn’t realized yet that thought there was huge stock piled up at Malaysian front, but the total stocks of Indonesia and Malaysian are not at a very significantly high level. Along with that, rate of increase in total consumption is much higher than the stocks availability.
Moving forward, the total stock at both major nations, Malaysian and Indonesia is likely to decline further by 10% on monthly basis to 5 million tons in March’19. With rising exports demand by 25% on m-o-m basis in March, one might notice further decrease in stock to consumption ratio.
With above analysis, its very clear that bearish fundamentals which were weighing on palm market sentiments are now turning towards positive side. Further, consumption demand is likely to increase in coming couple of months with upcoming ‘Ramadan’ festival and prevailing summer season. The industrial consumption of palm is high in summers as the oil doesn’t solidify at room temperatures and thus its easy to blend with other oils.
The only threat to palm oil industry is from EU consumption demand. 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. However, the EU concern of phasing out palm completely is a very long-term plan, starting in 2023.
Thus, to conclude palm market prices are likely to recover from the current levels and shall trade with positive bias in coming couple of months.
(By Commoditiescontrol Bureau)
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