Malaysian palm oil prices recover on output concerns, strong demand

Malaysian palm oil futures at the Bursa Malaysia rose sharply on Wednesday - with the front-month rising by nearly 4% on the day - on the back of lower output expectations, strong demand from India and political turmoil, industry sources have told Agricensus.

The gains mean that the contract has now recovered much of the ground lost at the end of July and early August after disappointing export data had weighed on sentiment.

Palm oil’s most liquid October contract climbed by as much as 4.6% on the day, but had pared some of the gains by closing time to end at MYR 4,293/mt ($1,017/mt) on August 4, up 3.6% on the prior day’s settlement.

Trailing contracts also traded higher, with the November contract up by 3.6% to close at MYR 4,146/mt ($982.1/mt), and the December contract up by 3.2% on the day to close at MYR 4,055/mt ($960.6).

“The BMD is rallying due to two major factors: a Dalian rally from Chinese funds pushing it up, and Indian physical buying this week,” Singapore-based broker Andy Soo, from Tropical Oil ACI, told Agricensus.

India’s demand for palm oil has returned in July following demand destruction in May-June due to record high prices for the tropical oil.

And “with the festive season round the corner demand should continue to be robust along with prices,” the Solvent Manufacturers Association of India (SEA) said in a press release in late July.

“Renewed palm oil purchases from India and political uncertainty in Malaysia have contributed to the rise in BMD CPO futures on Wednesday," Anilkumar Bagani, research head at Mumbai-based vegetable oil broker Sunvin Group, said to Agricensus.

"[Palm oil] prices are also well supported by lower July palm oil output and better expectations of August 1-5 export numbers,” added Bagani.

Provisional export volumes for August 1-5 from cargo inspector ITS is expected to show an increase of 15.4% on the month, higher on the July export data which showed a decline of around 5.2% on the month.

Another factor that may be influencing prices is the continued weakness of the Malaysian ringgit, which increases the competitiveness of Malaysian palm oil versus other origins.

“Political instability in Malaysia, with the incumbent government likely to be replaced, may be weakening the Malaysian Ringgit,” Sathia Varqa, owner and co-founder at Palm Oil Analytics, told Agricensus.

Tight fundamentals 

Malaysian palm oil production for July has been widely expected to be lower on the month on lower oil yields and labour shortages at palm plantations.

Output estimates for Malaysian palm oil showed a drop in production for July, ranging from minus 3% to minus 7% on the month, according to a market survey carried out by Singapore-based bank UOB KayHian.

And for full-year estimates, Palm Oil Analytics has downwardly revised its crude palm oil production for 2021, expecting it to come in within a range of 18.75-18.9 million mt, down from 19 million mt originally.

Another output revision was done by Refinitiv Commodities Research, which have revised its Malaysian palm oil production outlook to 18.2 million mt, down 1% from the previous update, owing to labour shortages at palm plantations.

The USDA forecast Malaysian crude palm oil production at 19.7 million mt in 2021, at an increase of 8% on the year.