Monthly Prices Movement

  • Palm Oil prices traded mixed with both negative and positive sentiments throughout the month amid volatility in Indian Rupee, Ringgit, weak exports and expectations of higher output tracking seasonal demand.
  • Palm Oil price at the starting of the month was hovering around Rs.570-585/10 kg level at the various markets of India which came down to Rs.555-560/10 kg at the end of the month.

Ground Report

  • Demand for Indonesian Palm Oil from other countries rose as well. Demand from African countries increased 40 percent, followed by India (+32 percent), Pakistan (+26 percent), the European Union (+18 percent), and Bangladesh (+17 percent).
  • Export of Palm Oil from June 1-20 fell 8.7 percent from the same time period a month ago, as demand from Muslim majority markets weakened leading up to Eid.
  • Palm Oil planters in India hoping to increase acreage this year after the forecast of above normal monsoon rains.
  • The total area under Palm cultivation was 0.16 million hectares which fell by 50% last year.
  • The acreage is likely to go up by 40,000 hectares totaling to 0.20 million hectares.
  • With China cutting its import due to economic slowdown, Palm Oil producers like Malaysia and Indonesia are allegedly dumping it in India, resulting in lower profits for domestic firms and forcing some shut downs.
  • Malaysia's Palm Oil exports during June 1-10 period estimated down by 5.9% m/m at 368,316 metric tons, Intertek Testing Services said.
  • Palm Oil buying by India from Malaysia during June 1-10 dropped sharply by 60%.
  • India's Palm Oil imports fell by 27.54 per cent to 6,57,454 tonnes in May, Solvent Extractors Association data indicated.
  • Import of cheap RBD Palmolein has increased in last few months but last month, overseas purchase including RBD Palmolein showed a decline due to highest stock at port and pipeline and reduced demand due to summer.
  • Domestic refining industry of India facing severe crisis of under utilization of capacity due to rising cheap imports of RBD Palmolien.
  • Refined Palm Oil is cheaper to import because the export tax imposed on it by Indonesia/Malaysia is lower than CPO.
  • Palm Oil stocks at various ports of the country totaled at 5.20 lakh tonnes as on June 01, 2016.
  • Malaysia's Palm Oil exports during the June 1-15 period estimated up 0.5% from a month earlier at 566,212 metric tons.
  • Export of Palm Oil from June 1-20 fell 8.7 percent from the same time period a month ago, as demand from Muslim majority markets weakened leading up to Eid.
  • Palm Oil planters in India hoping to increase acreage this year after the forecast of above normal monsoon rains.
  • The total area under Palm cultivation in India was 0.16 million hectares which fell by 50% last year.
  • The Palm Oil acreage in India is likely to go up by 40,000 hectares totaling to 0.20 million hectares.
  • Import of cheap RBD Palmolein has increased in last few months but during May, overseas purchase including RBD Palmolein showed a decline due to highest stock at port and pipeline and reduced demand due to summer. Domestic refining industry facing severe crisis of under utilization of capacity due to rising cheap imports of RBD Palmolien.
  • Refined Palm Oil is cheaper to import because the export tax imposed on it by Indonesia/Malaysia is lower than CPO.
  • Duty differential in India has to be made variable to be in line with the differential duty prevailing in Malaysia/Indonesia and justify to increase in duty difference between Crude and Refined Vegetable Oils from 7.5% to 15%.

Policies

  • Indonesia's exports of Palm Oil and Palm Kernel Oil in April rose 20 percent to 2.09 million tonnes from the previous month, the Indonesian Palm Oil Association (GAPKI) said.
  • Indonesia exported 568,120 tonnes of Palm Oil and Palm Kernel Oil to India, 368,770 tonnes to European Union countries, and 149,340 tonnes to China in April.
  • Production stood at 2.34 million tonnes in April, while ending stocks in Indonesia fell to 2.27 million tonnes in April.
  • Malaysian Palm Oil shipments rose between 11 to 15 percent in May from April.
  • Malaysia is set to increase the blending of Palm Methyl ester from 7% (B7) to 10% (B10) with 90% petroleum diesel for the transport sector while 7% (B7) for the industrial sector.
  • Malaysian Palm Oil Board (MPOB) stated that Malaysian Palm Oil stockpiles dropped by 8.8% to 1.65 million metric tons at the end of May. Stocks should start to rise over the mid-term because demand seems to be dropping off a bit.
  • Malaysia's Palm Oil exports rose 9.3% Month on month to 1.28 million metric tons in May, MPOB said.
  • Malaysia's Palm Oil imports plummeted by 52% to 20,024 metric tons in May while Malaysian Crude Palm Oil Output surged 4.9 percent to 1.364 million tons, according to MPOB.
  • Malaysia raised its Crude Palm Oil export tax to 6 per cent in July from 5.5 per cent in June.
  • India kept import tariff value steady for Crude Palm Oil and RBD Palm Oil at $715 per metric tons and $729 per metric tons respectively.
  • Malaysian Palm Oil futures fell after the government said it was in talks with oil companies to push the start of its B10 bio-diesel mandate to July.
  • Mandate would start a month later than initially planned in June, aiming to complete full implementation of the new standard by August.

Global

  • Oil World estimates global Palm Oil production deficit for oil year (November 2015 – October 2016) at 1.4 million tons compared to a surplus of 2.1 million tons for 2014-15.
  • Malaysian Palm Oil output could drop to 18.9 million tons in the calendar year 2016 compared to 20 million tons in 2015, Oil World said.
  • Indonesian Palm Oil production estimated at 32.7 million tons compared to 33.4 million tons in 2015. With a demand of 2.4 MT this year alone in Indonesian bio-fuel industry, Palm Oil is to get a major boost.

Outlook

  • Benchmark Palm Oil prices may trade between 2500-2700 Ringgit per tonne in the next three months. Exports tend to slow down seasonally after Ramadan.
  • High rainfall in Argentina and Brazil disturbed local Soybean harvests, while the US Soybean harvest is weak as well. Furthermore, Rapeseed harvests in China, India and the European Union are weak too, hence boosting demand for CPO.
  • El Nino-inflicted dry weather in Southeast Asia in 2015 and the start of 2016 curbed CPO output in Malaysia and Indonesia and managed to push Palm Oil prices higher in the first quarter of 2016.
  • The trend of the past three years shows that generally, the spread between Soy Oil and CPO prices has remained between $50/tonne and $150/tonne with few exceptions. Whenever this spread starts moving towards the zone of $100-50, Soy Oil is preferred more over Palm Oil and vice-a-versa.
  • Palm Oil production rises seasonally in the second and third quarters of the year, adding to stockpiles and capping gains on Palm prices.
  • Factors capping the CPO price upside currently are release of Rapeseed Oil stocks by the Chinese government, competition from Soybean Oil, and slower global economic growth.
  • Crude Palm Oil prices to trade in the range of RM 2,400 to RM 2,800 per tonne in the second half this year.
  • Palm Oil production recovery and concerns over weaker demand from India and China may put some pressure on prices.
  • Palm Oil exports are expected to fall after the festivities end in July. The export tax is also a deterrent to a certain extent by making Palm Oil more uncompetitive.
  • Weak Malaysian Palm Oil exports will not cut stock in producing countries as Palm Oil enters rising production period.
  • A new mandate in Malaysia to use more bio-diesel will not create enough new demand to drain surplus output of CPO as exports may slow in coming months.
  • With China cutting its import due to economic slowdown, Palm Oil producers like Malaysia and Indonesia are allegedly dumping it in India, resulting in lower profits for domestic firms and forcing some shut downs.

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