World palm oil prices will hold firm into next year, Malaysian officials said, citing concerns over hits to production from La Nina-boosted rains, and factoring in a resumption of Indonesia’s export levy too.
Ahmad Parveez Ghulam Kadir, director general of the Malaysian Palm Oil Board, the country’s industry regulator, said that the palm oil price was “anticipated to remain strong”, underpinned by worries over heavy rainfall undermining output in both Indonesia and Malaysia, the world’s top two producers.
“Supply disruption on crude palm oil is expected in the first quarter of 2023 due to tropical storms,” Mr Ahmad Parveez said, adding that “localised flooding may disrupt harvesting” of oil palm fruits.
Indonesia vs Malaysia
He flagged too the potential for a boost from currency markets, saying that a “persistently weak Malaysian ringgit would continue to make palm oil prices cheaper, thus encourage demand for Malaysian palm oil”, at a time when Chinese demand in particular looks poised to grow.
Palm exports to China “will pick-up as it is anticipated that China would gradually relax its zero-Covid policy, which has hindered palm oil consumption and demand”, he said, noting too that the country is expected to increase its capacity for using the vegetable oil in the likes of biodiesel and specialty fats.
Furthermore, Malaysian exports stand to gain from a likely resumption of Indonesia’s export levy, which the country temporarily scrapped in a bid to run-down stocks swollen by an export ban earlier this year.
“The expected resumption of export levy in 2023 is expected to lift palm oil prices,” Mr Ahmad Parveez said, adding that the sizeable discount of palm oil to rival soyoil “is expected to narrow”.
‘Upward trend’
The comments followed a forecast from Wan Aishah Wan Hamid, chief executive of the Malaysian Palm Oil Council, that prices will remain within the range of 4,000-4,400 ringgit per tonne for the rest of 2022, with the prospect of only limited falls into the first half of next years.
She again cited output concerns, saying that the “palm oil price has started to see an upward trend due to a combination of weaker Malaysian ringgit and supply worries due to floods in both Indonesia and Malaysia”.
Furthermore, “the ongoing Russia-Ukraine conflict will still be a factor”, along with limited production growth, meaning that prices will trade from 3,900-4,300 ringgit per tonne until March, and at 3,800-4,200 ringgit per tonne “until second quarter of 2023”.
She also noted that for the overall global oils and fats sector, the stock-to-use ratio has slipped to 13.38% in 2022 from 13.53% last year.
The estimate included a forecast for Malaysian palm oil output of 18.08m tonnes this year, down some 200,000 tonnes year on year, while Indonesian production was seen expanding by 1.9m tonnes to 46.6m tonnes.
Futures prices
Palm oil futures tumbled by 4.1% to 4,112 ringgit per tonne in Kuala Lumpur on Monday, in a decline attributed to a recovery in the ringgit against the dollar this month, so cutting the competitiveness of Malaysian exports, and to weakness in markets for rival vegetable oils, such as soyoil.
The futures curve anticipates prices holding above 4,000 ringgit per tonne until September 2023, before dipping below 3,800 ringgit per tonne in spring 2024.
