China lockdowns overshadow palm oil outlook despite output slowdown

THE global outlook for palm oil remains uncertain, with strict Covid-19 policies in major importer China weighing on demand, even as high energy prices and a slowdown in output provide support, said leading industry analysts.

Malaysian benchmark futures earlier this year surged to record levels of more than RM7,200 (S$2,143) per tonne, due to top producer Indonesia’s export restrictions, which culminated in a three-week export ban starting late April.

Prices have since come down amid concerns over a global economic slowdown, and as China maintains a strict Covid-19 containment policy that has caused mounting economic damage.

“China has been a real disappointment for sellers of vegetable oils because the market happens to be under lockdown all the time,” James Fry, chairman of commodities consultancy LMC International, told participants at the Indonesia Palm Oil Conference in Bali.

“I cannot see this changing very quickly,” he said, contrasting the situation with the bright outlook of top vegetable oil importer India, which has seen purchases rise up to September.

Palm oil prices on a free-on-board (FOB) basis at Indonesia’s Sumatra ports could ease to US$920 per tonne from US$940, Fry said.

Malaysia’s benchmark prices are expected to come in at between RM3,500 to RM4,500 per tonne in the period from now until the end of March next year, said Dorab Mistry, director of Indian consumer goods company Godrej International.

The contract was trading at RM4,375 per tonne by 0842 GMT on Friday.

Mistry no longer expects palm futures to fall to 2,500 ringgit per tonne, an estimate he made in September, unless Brent crude prices drop to US$70 per barrel. Brent crude is currently trading above US$94 a barrel.

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Meanwhile, global palm oil production from January to December in 2022 is expected to be 78.3 million tonnes, Thomas Mielke, head of Hamburg-based analyst firm Oil World, said. He noted that output has been on a downtrend in recent years, which was “alarming”.

Global palm oil output is expected to rise by 2.9 million tonnes in the 2022/2023 season, he said.

All the analysts were also monitoring Indonesia’s plan to increase its biodiesel mandate to B40, which contains 40 per cent of palm oil, from 30 per cent currently.

Fry said if Indonesia implemented its B40 biodiesel mandate in January, Sumatra’s FOB prices could reach US$1,080 per tonne in June.

Mielke warned that if the biodiesel policy is not considered carefully, it could cause further price volatility down the line.

Indonesian officials said on Thursday high crude oil prices were making it more feasible to use a higher mix of palm oil in fuel. REUTERS