The global outlook for palm oil remains uncertain due to strict Covid policies in major importer China, according to leading industry analysts attending the 18th Indonesian Palm Oil Conference (IPOC) from 2-4 November.
However, high energy prices and a slowdown in output were supporting the sector, a 4 November Reuters report on the Bali conference said.
Earlier this year, Malaysian benchmark futures surged to record levels of more than 7,200 ringgit (US$1,517)/tonne due to export restrictions imposed by top producer Indonesia, which culminated in a three-week export ban in late April, Reuters wrote.
Since then, prices had dropped amid concern over a global economic slowdown and with China maintaining a strict COVID-19 containment policy that had caused economic damage, the report said.
“China has been a real disappointment for sellers of vegetable oils because the market happens to be under the lockdown all the time,” James Fry, chairman of commodities consultancy LMC International, was quoted as saying at the conference.
“I can’t see this changing very quickly,” he said, contrasting it with the positive outlook for top vegetable oil importer India, which had seen purchases increase up to September.
Palm oil prices on a free-on-board (FOB) basis at Indonesia’s Sumatra ports could ease to US$920/tonne from US$940/tonne, Fry added.
Malaysia’s benchmark palm oil futures price was expected to trade at 3,500-4,500 ringgit (US$737-US$948)/tonne in the period from now until the end of March next year, Dorab Mistry, director of Indian consumer goods company Godrej International, was quoted as saying.
Mistry said he no longer expected palm futures to fall to 2,500 ringgit/tonne, an estimate he made in September, unless Brent crude prices dropped to US$70/barrel. At the time of the report, Brent crude was trading above US$94/barrel.
Thomas Mielke, head of Hamburg-based analyst firm Oil World, told the conference that global palm oil output was expected to increase by 2.9M tonnes in the 2022/23 season, while noting that output yield had been on a downtrend in recent years, which he said was “alarming”.
“For the first time, palm oil is at the edge of marginal growth,” Mielke said, adding that output might not be enough against a backdrop of a range of bio-energy agendas globally.
All analysts said they were monitoring Indonesia’s plan to increase its biodiesel blending mandate to 40% palm oil (B40), from the current 30% blend.
Fry said if Indonesia implemented its B40 biodiesel mandate in January, Sumatra’s FOB prices could reach US$1,080/tonne in June, while Mielke warned that if the policy was not given careful consideration, it could lead to price volatility.
Indonesian officials said on 3 November that high crude oil prices had made using a higher mix of palm oil in fuel more feasible.
Fadhil Hasan, an executive with Indonesia’s Palm Oil Association, said the government should not increase blending levels this year, or next, to avoid pushing prices higher.
“It is going to impact domestic market prices of crude palm oil (CPO), in turn causing cooking oil prices to increase,” he was quoted as saying.