This month’s revival in palm oil futures looks poised to run out steam, given the prospect of “relatively high” Malaysian inventories and declining Indian imports, Rabobank said – even as it raised its forecast for prices.
The bank lifted its forecast for quarter-average Kuala Lumpur palm oil prices in the last three months of 2022 by 500 ringgit per tonne, lifting expectations for values in 2023 as well.
However, the upgraded forecasts – which for the current quarter stood at 3,800 ringgit per tonne, easing back to 3,300 ringgit per tonne for the July-to-September period of next year – remained below levels investors are pricing in.
The benchmark January 2023 contract stood at 3,998 ringgit per tonne in late deals on Friday, with the futures curve suggesting a gentle decline through the rest of the year, with the November lot for instance trading at 3,873 ringgit per tonne.
Malaysian stockbuild
The bank’s outlook reflected in part expectations that palm oil inventories in Malaysia, the second biggest producer and exporter of the vegetable oil, having hit their highest in nearly three years last month, will remain relatively elevated.
Competition in exports from Indonesia will remain strong, as the biggest palm oil grower and shipper continues a drive aimed at drawing down stockpiles built by a short-lived export ban.
“The Indonesian government is expected to extend its zero-levy policy on palm oil exports for the remainder of the year,” Rabobank said.
“Hence, we expect Malaysian palm oil inventories will remain above 1.8m tonnes” as of the end of 2022.
That would represent an increase of some 400,000 tonnes from the close of last year, to the highest year-end figure since 2019.
‘Tepid demand’
Furthermore, imports by top buyer India “will be lower quarter on quarter” in the October-to-December period, having been boosted in the July-to-September period by stockbuilding ahead of holidays including Diwali, celebrated earlier this week.
Imports will slow “due to high domestic edible oil inventories, tepid seasonal post-festivities demand, and domestic soybean availability”.
However, Rabobank proved less bearish than some other commentators, notably Dorab Mistry, the influential analyst, who foresees prices falling to 2,500 ringgit per tonne by the close of the year.
“While we are of the opinion that, fundamentally, upward palm oil price movements will be limited in the fourth quarter of 2022, volatility in crude oil prices will still provide support.”
Palm oil is linked to crude oil, in price terms, thanks to its use largely in making biodiesel.
Spot Brent crude futures stood on Friday down 0.6% to $96.41 per barrel, but still up 9.6% for this month.
