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Below is Note on Crude Palm oil By Mr Abhijit Banerjee, Senior Research Analyst- Agri Commodities, Religare Broking Ltd.

Crude Palm Oil Falls Significantly in June – Has the Broader Outlook Changed?

Higher prices of palm oil during the month of May have negatively impacted palm oil exports from Malaysia.  As per the official data, palm oil products for June 1 - 20 have dropped by 10.5 percent to 738,368 tonnes from 824,589 tonnes shipped during May 1 – 20. A reversal in the trend was observed June onwards. Prices have fallen sharply during this month. When compared with May 29^th 2022 prices, Malaysian palm oil is currently down 27 percent approximately. The recent fall in prices is mainly because of slowing export demand and weakening trend of crude oil. Crude oil has a positive correlation with crude palm oil since both are used in biodiesel manufacture. China had yet to fully emerge out of its zero-Covid policy and this explains subdued edible oil demand during the last few weeks.

Global edible oil supply tightness began when production dipped and failed to meet demand in 2020. Inventory slipped and continued doing so in 2021. Experts feel that if the production recovers during the remaining part of 2022, the ending inventory should edge up year-on-year. However the inventory is unlikely to exceed 2019 levels. Demand for CPO continues to be subdued in the present term. Reports say that the annual consumption grew 3% on average for the past 10 years. The growth during the Covid-19 years of 2020-21 moderated to around 1%, and it may hover around 1% to 2% in 2022, because of the high prices. As understood by industry experts, in case the world adapts to a new post-Covid-19 norm is likely, a reversion back to a 3-4% growth is possible. At present around 70% of edible oils are consumed as food.

The fossil fuel prices are ruling higher, especially after the Russia-Ukraine conflict, and demand for biofuel has been good. The outlook for biofuel demand remains optimistic for the second half of 2022. Summing up, we expect a favourable trade scenario during the second half of 2022, given that prices are still giving positive returns, assuming a helpful weather and reducing Malaysia’s labour shortage - in supporting the production. It may be noted that due to border movement restrictions during the active COVID period, the labour shortage problem had emerged in Malaysia. As export demand is likely to improve, an increase in production scenario will imply better trade prospects in forthcoming months. The benchmark contract of BMD CPO closed at 4656 MYR/Tonne on Friday, June 24th. Technically, the front month prices shall move towards the 5200-5300 levels in July, if we get this month’s closing well above 4540. 

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