Home / Commodities / Commodity News / Lower palm oil prices likely but markets wary of supply, recession risks

Lower palm oil prices likely but markets wary of supply, recession risks

Crude palm oil prices may ease in 2023 after hitting record highs last year, but “wild cards” such as Malaysia’s labor crunch at its palm plantations, China’s re-opening, and looming recession fears could upend forecasts, industry sources warned.

Third-month crude palm oil futures on Malaysia’s commodity exchange are expected to be at around MR 3,800/mt ($859.24) in 2023, according to the median estimate of eight leading industry analysts and trade bodies polled by S&P Global Commodity Insights.

In 2022, the benchmark CPO contract price reached an all-time high in May due to the double whammy of the Russia-Ukraine war and Indonesia’s temporary export ban, averaging at MR 4,943/mt – well above the 2021 average price of MR 4,142/mt in 2021 and much higher than the average price of MR 2,489.1/mt between 2017-2020.

Higher output likely
Forecasts for Malaysia’s palm oil production are optimistic as foreign workers are expected to return amid easing pandemic-induced restrictions in the country.

While the government restarted recruitments February 2022, the inflow of foreign workers has been much slower than industry expectations, partly due to slow government approvals.

The Malaysian Palm Oil Council said that palm oil production is set to recover in 2023 after three years of decline, with industry estimates forecasting a 3% to 5% increase over nearly 18 million mt produced in 2022.

Simultaneously, Malaysia’s palm oil inventories jumped to the highest level in three years in October 2022. If the pace does not pick up in 2023, Malaysia’s palm companies will lag in harvesting during peak production season, one Malaysian producer said.

Malaysia’s larger rival, Indonesia’s 2023 production is forecast to rise 3% on the year to 48.1 million mt, and exports to increase 2.5 million mt to 33.5 million mt, according to the Indonesian Palm Oil Association, or Gapki.

Globally vegetable oil production growth is likely to accelerate to 4% in 2023r, according to USDA forecasts, driven by a robust output growth forecast for rapeseed and soybean oils.
Recession fears may hurt demand

The global economy is expected to face significant challenges in the months ahead and threats of global recession could hurt palm oil demand.

A mild recession is expected to begin early next year with the subsequent recovery to begin in the second half of 2023, S&P Global Market Intelligence said in a note on Dec. 12. On an annual basis, global GDP is forecast to expand just 0.3% from 2022 to 2023.

Similarly, the IMF forecast global growth to slow from 6.1% in 2021 to 2.7% in 2023 and expects many global economies to contract during part of 2022 or next. It previously forecast growth to slow to 3.6% in 2022 and 2023.

“If recession hits, it will be a bumpy road ahead. Buyers will have less purchasing power to import huge loads [of palm oil] … consumption will fall,” a trader said.
Indonesia’s biodiesel program

Industry sources said it is imperative for Indonesia to grow its domestic biodiesel blending mandate which would support consumption for palm oil, should palm exports drop because of the global recession.

Indonesia’s B35 biodiesel mandate is expected to be implemented from February 2023 due to high crude oil prices and the move could increase domestic demand for palm towards biodiesel production, sources said. The increase in the blending mandate will likely boost Indonesian biodiesel demand 18% from 11 million kl to 13 million kiloliters, which translates to around 1.8-2 million mt of additional CPO consumption in 2023, industry sources said.

If Indonesia successfully implements its higher biodiesel mandate, Indonesia’s CPO price could hit more than $1,000/mt by the second quarter of 2023, sources said. The spot price of CPO loading from Dumai for January was assessed at $962/mt on Dec. 30, data from S&P Global showed. The price has since declined 50.1% from the peak at $1,930/mt in March 2022.

Demand projections point downwards
Demand outlook from the second-largest palm oil buyer China is now expected to weaken after the country faced a surge in COVID-19 infections ahead of the Lunar New Year festive period.

Meanwhile the EU bloc, traditionally the third-largest palm oil buyer in the world, has been winding down its palm oil imports in the last two years. Phasing out of palm oil imports will continue into next year as its anti-deforestation regulations get implemented.

However, demand from biggest buyer India, along with other price sensitive markets such as the MENA region, is set to grow in 2023 as CPO’s significant discount against soybean oil and sunflower oil will likely support demand and pricing.
Source: Platts

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping
error: Content is protected !!