Crude palm-oil futures rebounded from December lows and gained around 10% in January. The commodity was a victim of supply glut in 2018 in the two largest supplying nations, Malaysia and Indonesia.
Palm-oil inventories in Malaysia surged to a record in December 18, pushing the benchmark Malaysian palm-oil futures to a many-year low in the last quarter of 2018. The effect was seen in India, one of the largest importers of palm oil from Malaysia.
For 2019, the scenario is exactly opposite. Palm-oil prices recovered as Malaysian exports rose while production declined due to seasonally lower yield. Accordingly, stockpiles have been declining from the record levels of December.
A Bloomberg survey shows that Malaysian inventories in January may drop about 6% from the month prior to 3.03 million tonnes. Output is down about 10% to 1.63 million tonnes and exports probably up 13% from December to 1.56 million tonnes.
Indonesia’s palm-oil exports are likely to decline from this year as a vigorous bio-diesel program starts absorbing more local supplies. Lower supplies from Indonesia, the largest palm-oil-producing nation, would increase opportunities for Malaysia to export palm oil and reduce its record stockpiles further.
Global vegetable oil demand may increase this year, particularly from China. Because of an outbreak in China’s hog herds of African swine-fever, it is cutting soybean imports this year; hence, it would need to increase its vegetable-oil imports.
Indian is one of the largest edible-oil-importing nations — 70% of India’s domestic consumption is comprised of imports. Thus, domestic CPO futures are mostly driven by developments in major supplying nations, Malaysia and Indonesia.
This week and the next will be crucial as the USDA’s monthly demand-supply report is scheduled for Friday while the Malaysian Palm Oil Board (MPOB) will release its official January production, export and stock figures on February 11.
Edible-oil markets would be volatile ahead of the data. Although the short- to medium-term trend is bullish, prices are due to drop in the immediate term.
(The author is Head – Commodity Research & Advisory, Anand Rathi Commodities)
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