Palm oil prices, backed by “solid” supply and demand dynamics, have passed their nadir and are poised for “elevated” levels next year, Sipef said, in a briefing which sent its shares soaring.
The Brussels-listed plantations group said that palm oil prices, while having suffered a “big correction” from record levels reached earlier, were not poised for further weakness, despite being still at “historically… very high price levels”.
Higher costs of plantation inputs, such as fertilizer and labour meant that “a new floor has been set for the future”, Sipef said.
Indeed, the group was “looking forward positively to elevated palm oil price levels in 2023”, for which values were set to be buoyed by supply and demand fundamentals which “are looking solid” for next year.
‘Not burdensome anymore’
Palm oil stocks “have already been reduced” from sizeable levels reached after Indonesia, the top producer and exporter, in April introduced a short-lived ban on shipments.
“The situation is not burdensome anymore,” Sipef said.
Indeed, stocks were “expected to be at normal levels by the end of the year” as palm oil’s relative cheapness compared with rival vegetable oils encourages demand.
Palm oil futures for January stood at 4,096 ringgit a tonne in late deals in Kuala Lumpur, equivalent to some $866 per tonne – a discount of 75%, or more than $640 per tonne, to soyoil, as measured by Chicago’s January lot.
Such price competitiveness was highlighted last week in top buyer India as spurring a boost to palm oil’s share of vegoil imports.
‘Could be a negative’
Sipef highlighted challenges ahead to supplies of other vegetable oils, with the market in soyoil requiring a “great soybean crop in South America, to balance the stock as well as fulfil the growing biofuel demand, particularly in the United States”.
This in the teeth of a La Nina which “usually brings dry conditions in Argentina and Brazil”, and “could be a negative” to South American output.
Meanwhile, the Ukraine war “could have a significant impact on the trade corridor of agricultural products”. Ukraine is the top exporter of sunflower oil.
Sipef’s upbeat outlook for palm oil prices contrasts with that of leading analyst Dorab Mistry, who has forecast a retreat in Kuala Lumpur values to 2,500 ringgit per tonne by the end of this year.
Mr Mistry based that level on what he assessed as the cost of output for many producers.
However, the buoyant market for much of this year has allowed Sipef to sell 88% of its forecast 2022 palm oil output at $1,035 per tonne, up one-third on the price achieved at the same time last year, when it had also priced 88% of its expected production.
The group restated a forecast of its palm oil output expanding by 4% this year, adding that it expected to report “very satisfactory” full year results which “in all likelihood… will exceed the historic mark of $100m” at an underlying level.
“This positive evolution is the result of the combination of increasing annual production volumes, already realised sales and an expected continuing, relatively strong palm oil market.”
For 2021, the group reported a comparable result of $88.9m, up from $17.2m in 2020.
Sipef shares stood 6.1% higher at E3.40 in lunchtime deals, taking gains over the last week to 13.2%.
However, the shares still stand well below their high of E71.40 reached in March, as palm oil values were peaking.