RECOVERY EXPECTED IN H2
But concerns over new wave of Covid-19 infections, trade friction may cloud outlook
PALM oil is heading for a recovery in the second half on improving global demand and dwindling output, months after the Covid19 crisis shattered the tropical oil’s stunning bull run.
Demand for the world’s mostconsumed cooking oil is poised to recover as lockdowns across the globe begin to ease and major consumers, including China and India, are boosting purchases to replenish stockpiles.
The Malaysian Palm Oil Council predicts the price will hit a peak of RM2,594 per tonne in the second half and average at RM2,337 this year if Indonesia and Malaysia proceed with their biodiesel blending mandates as planned, and Europe’s oilseed production eases, paving way for buyers to switch to palm.
Benchmark futures in Malaysia, now trading at around RM2,318, started racing higher at the end of last year before the coronavirus pulled the plug on demand, first in China and then in other major consumers, as governments shut borders and businesses to stop the spread of the pandemic.
Facing unprecedented headwinds, prices started tumbling in January and slumped to a 10month low of RM1,946 a tonne on May 6. Prices have dropped 23 per so far this year, compared with an 18 per cent decline in rival soyabean oil.
Concerns about a new wave of virus infections, extended lockdowns in some countries and reemerging trade friction between the United States and China may cloud palm’s outlook.
Here’s what industry participants are watching:
Poor production
The impact of dry weather and reduced fertiliser application by farmers last year have spilled into this year, hurting production of palm fruit. While output in Indonesia and Malaysia probably gained in the January to June period, yields in the second half, which account for about 60 per cent of annual production, may wane.
Output in Malaysia may drop 4.3 per cent to 19 million tonnes due to biological stress on trees and limited labour supply, according to the Malaysian Palm Oil Board.
Demand hopes
The appetite for palm oil may recover in the coming months as lockdowns are relaxed across the world. However, it’s still uncertain whether consumption can fully recover.
Malaysia was poised to benefit as India and China opened up, prices were relatively lower than Indonesian rates and trade ties between Malaysia and India were warming, said Sathia Varqa, owner of Palm Oil Analytics in Singapore.
Edible oil consumption will return, while oleochemical demand will surge due to its use in personal hygiene products such as soaps and hand sanitisers as well as personal protective gear.
However, palm was still facing a supply glut, which might climb to a peak that was “well above” three million tonnes by year end, said LMC International chairman James Fry at an online seminar last week.
Biodiesel demand might still suffer as people continued to avoid travelling, according to Oversea-Chinese Banking Corp economist Howie Lee in Singapore.