Mumbai (Commoditiescontrol) – Indian palm futures witnessed sharp gains during previous week due to likely decline in stocks at Malaysian and Indonesian front. By the end of Week, benchmark April’19 contract, finally settled at INR 540.9, marking loss of 4% compared to previous week close of INR 525.9 per 10 kg.
Malaysia pace of monthly production in March is estimated to be the lowest in 6 years rising at just 4.24% to 1.61 million tons compared to the usual 16—17% increase seen in the last 5 years. March is the start of production rebound period after low output in February due to shorter harvesting days from Lunar New Year holidays and a shorter month. However, this year March production based on average of Bloomberg and CIMB production values for March is estimated to below historical average due to lack of rainfall in key oil palm areas of southern Peninsular Malaysia and northern Sabah limiting moisture and reducing yields. CIMB estimate pegged production even lower at 1.70% to 1.571 million tons, while Bloomberg see output rising 7.14% to 1.650 million tons. According to CIMB, weak production from estates in Sarawak is the main reason for the slack.
Exports are seen rising strongly at 23-24% inline with estimates from Amspec, SGS and ITS cargo surveyors. Robust shipment to meet Ramadan fasting month seasonal demand to Muslim population countries and the E.U ahead of the 2019 deadline when the use of CPO for biodiesel would be capped until 2023. Export of RBD palm olein and RBD palm stearin was noticeably higher in March.
Lower production against strong exports and domestic demand is set to push palm oil stocks to the lowest in 6 months in March to below 3 million tons for the first time since November 2018. CIMB pegged stocks falling 10.90%, to 2.713 million tons, while Bloomberg estimate a moderate fall of 5.90% to 2.870 million tons but still 17-24% higher than same time last year. MPOB, report is scheduled to release during next week.
Moreover, As per GAPKI latest release, Indonesian stocks in Feb19 was also observed lower at 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.
Moving forward, the total stock at both major nation, 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.
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 it’s easy to blend with other oils.
To conclude, it’s very clear that bearish fundamentals which were weighing on palm market sentiments are now turning towards positive side due to sufficiently decline in stocks at both major palm production nations- Indonesia and Malaysia. Moreover, increase in seasonal and festive demand shall further support overall palm prices in near term.
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