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Asian Crude Palm Oil Watch 3Q22

Rising Supply Weighs on Prices in 3Q22 Malaysian benchmark crude palm oil (CPO) spot prices are at around USD800 per tonne (t), sharply lower than the year-to-date average of around USD1,300/t. Prices have dropped since June 2022, from over USD1,500/t, as increased exports from the world’s largest palm oil producer, Indonesia, have been supplemented by brighter market expectations of global vegetable oil supply. A sustained shortage of manpower in Malaysia, the world’s second-largest producer, has impeded output growth for the industry. However, we expect the situation to improve gradually and lead to significantly higher palm oil supply over the next year, supported by favourable weather conditions.

Therefore, we expect benchmark prices to trend lower and assume an average of USD700/t in 2023. Indonesia Exports, Inventories Pressure CPO Indonesia took steps to restrict exports in early 2022 to rein in local prices, which culminated in a three-week ban on export of CPO and cooking oil from 28 April. As a result, exports dropped by almost 40% in 5M22. However, Indonesia has encouraged exports after revoking the ban, and the total for June and July was up by 6% yoy.

Manpower in Malaysia Improving, but Slowly The shortage of foreign labour in Malaysia, caused by Covid-19-induced border restrictions, has persisted despite the lifting of the government recruitment freeze in February 2022. Workers have started to come in, but the pace of inflow has been much slower than industry expectations, due partly to slow government approvals. Indonesia Levy, Ukraine War Upside Risks Indonesia has waived the export levy until October 2022 to encourage exports of palm oil amid surging output. The waiver began in July, and has helped bring down international prices. The government has changed export-related regulations frequently this year, and a sharp rise in the levy could support benchmark prices.
Source: Fitch Ratings

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