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Thursday, 2 January 2014

Crude Palm Oil Destined to Climb Higher on Increased Demand Prospects

Domestic Scenario

India is the largest consumer of palm oil with a 16 per cent share, followed by Indonesia and China, with 13 per cent share each. In the total global imports, India has a share of 19 per cent per cent. However, India's share in the global production of palm oil is minuscule at around 0.2 per cent. Under the 12th Five Year Plan, the Agriculture Ministry plans to raise palm oil production by 0.3 million MT in five years. India consumes 17-18 million MT of edible oil annually, of which palm oil and soy oil account for over 45 per cent and 16 per cent share, respectively. Nearly 50-55 per cent of the consumption demand in the country is met by imports. In 2010-11, crude and refined palm oil accounted for over 74 per cent share, followed by soy oil with a 12 per cent share, in the total edible oil imports. This may surpass 10 million MT in 2012-13, compared to 9.98 million MT in 2011-12.

International Scenario

Global production of palm oil for 2013/14 is projected up 5 per cent to 58.1 million MT. Almost all of the increase could come from output growth in Indonesia, which is expected to rise to 31 million MT from 28.5 million MT in 2012/13. As a result, next season Indonesia is expected to expand its palm oil exports to 21 million MT from 20.1 million MT in 2012/13. Indonesia’s share of global palm oil exports could grow to nearly half. 

Price Trend Analysis

With the rising energy prices in the global market the prices of palm oil have moved up since November 2008. For the oil year 2010-11 the upswing in the prices started in the month of June and it continued till January amidst increased import demand from India, European Union and China. Since then the downward movement has been noticed amidst increased supplies from Indonesia and Malaysia and slowing of demand from China. The market is expected to witness another upswing in the coming months owing to the rising demand coupled with the new push toward bio-fuel use as geo-political unrest threatens crude oil supplies, and increased off take from European Union.

Looking at the price trends in palm oil, prices start the down trend during the month of May as the seasonal increase in oil palm fruit production and increased crushing activities lead to increase in supplies. Also the same coincides with the start of oilseed (especially soybean) plantings in US and China along with arrival of new crop oilseeds at the South American front. This down trend continues up to Sep-Oct, during which palm oil production peaks and also it is the period which signals the start of festive season buying across Asian countries. This uptrend continues till May, as the supplies remain tight. 

Production & Price Forecast

Low palm oil prices have made imports quite attractive, especially for India—the top import market. In January 2013, India imposed a 2.5 per cent duty on imports of CPO, effectively narrowing the duty gap between crude and refined products to 5 per cent. That is encouraging importers to buy cheaper refined palm oil instead of CPO. India's palm oil imports in the year starting Nov. 1, 2013 are likely to climb to 8.9 million MT from 8.7 million MT estimated for the current year. In spite of the surging production the increased demand is likely to keep supporting the prices and Malaysian CPO futures is likely to test the levels of 3200 to 3600 in the year 2014.

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