Recently, the palm oil market as a whole has been on a downward trend, and on May 7, it came under pressure again. At an industry conference in Dubai, renowned industry analyst Dorab Mistry made an important prediction, stating that palm oil futures prices could fall to a two-year low of 3,500 ringgit per tonne (about $826.50) in the future.
This prediction is mainly based on the pattern of the production cycle in Malaysia and Indonesia, the major palm oil producers in Southeast Asia. Usually starting in June and lasting until November, the two countries will see a seasonal increase in palm oil production. With the increase in production, the market supply is gradually loose, and inventory levels are also rising, which in turn generates downward pressure on palm oil prices.
Looking back at past data, palm oil price volatility has been significant. For example, the benchmark palm oil contract for July delivery on the Bursa Malaysia Derivatives Exchange fell 38 ringgit, or 1 percent, to close at 3,754 ringgit at noon on May 7th. In November last year, the price of the contract had climbed to a two-year high of 5,202 ringgit, but now the sharp drop in prices reflects a clear shift in the market's supply and demand patterns.
Dorab Mistry further analyzes that palm oil has indeed regained its price competitiveness as soybean oil prices have adjusted. However, if palm oil wants to regain its share in the international market, only by the current price advantage is not enough to support, but also need to continue to maintain a lower price level to attract more buyers.
India, for example, as the world's largest palm oil importer, its share of palm oil imports in the period from November 2023 to March 2024 is not optimistic. During this period, the share of palm oil in its total vegetable oil imports fell sharply to 43% from 61% in the past. This change highlights the huge challenge palm oil faces in competing with other oils such as soybean oil and sunflower oil, and reflects the weak growth in market demand for palm oil.
Meanwhile, Indonesia has recently made adjustments in its palm oil export policy. In order to prioritize domestic biofuel demand, Indonesia has tightened its export policy on used cooking oil and palm oil mill wastewater. This move has disrupted the global palm oil supply pattern to a certain extent, driving up the US soybean oil futures price and further intensifying the competitive pressure on palm oil in the international market.
In addition, a number of developments in the Chinese market also had an indirect impact on the palm oil market. Due to China's higher tariff policy on Canadian agricultural products, this has led to increasing demand for India's rapeseed meal exports in the Chinese market. With the rise in India's rapeseed meal exports, India's domestic oilseed crushing activity is expected to grow. The increase in oilseed crushing will enable India to produce more rapeseed oil, thus reducing to some extent its demand for palm oil and other vegetable oil imports, which is undoubtedly worse for the palm oil market.
Overall, the current palm oil market is facing multiple unfavorable factors superimposed impact. From the main producing countries in Southeast Asia seasonal increase in production, to India and other major importing countries, the decline in demand, to the adjustment of Indonesia's export policy and the chain reaction of the Chinese market, the combined effect of these factors, the downward pressure on the price of palm oil has been increasing, the future can be predicted as Dorab Mistry fell to a new low of two years, we will continue to pay attention to the market's subsequent changes.
