A rebound in Southeast Asia’s palm oil production this year is forecast to drag down prices of the tropical product in the second half, with additional pressure coming from an expected slowdown in demand from top importers India and China.
Tight supplies following a drought in 2015-16 are expected to support the market over the next two months, but downward pressure should build from May as output picks up in Indonesia and Malaysia, analysts and industry officials said at a conference in Kuala Lumpur.
Benchmark Bursa Malaysia crude palm oil futures fell to their lowest since early November last week on slowing demand and the outlook for higher production. On Wednesday (08/03), the main contract slid a second day to hit a low of 2,821 Malaysian ringgit ($634.40) a tonne.
Three leading analysts of the palm oil industry, Thomas Mielke, James Fry and Dorab Mistry have a rare consensus on prices declining by year-end or early in 2018.
While Fry expects crude palm oil prices to fall about 20 percent by the final quarter of 2017, Mielke expects oil prices to fall by more than 15 percent by 2018. Mistry is looking at prices to falling by nearly 12 percent by as early as June-July to 2,500 ringgit a tonne.
“The recovery in (crop) yields will be slow, the further increase in yields should occur in 2018,” Mielke told the packed conference hall.
This will add another 4.5 million-5 million tonnes to palm oil production next year, and this is “going to have a bearish impact of prices,” he said.
While production picks up, demand for palm oil from India and China is likely to slowdown.
Vegetable oil imports by India, the world’s biggest buyer, are expected to decline to 14.3 million tonnes in the year to October 2017, down from 14.738 shipped a year ago, Mistry said.
India’s soybean production climbed to 11.5 million tonnes late last year and the nation is expecting to harvest a bumper rapeseed crop next month.
Traders at the conference said a rise in China’s soybean imports means the country will need less palm oil as it will have higher supplies of domestically produced soybean oil.
Soybean imports by China, which takes more than 60 percent of beans traded worldwide, climbed 23 percent year-on-year in February to mark the highest level for that month since at least 2010 at 5.54 million tonnes.
Still, higher production of biodiesel, mainly in Indonesia, could help to limit any decline in palm oil prices.