Sharp fall in palm oil prices trend likely to continue

The palm oil market has entered a bearish trend, with prices falling 30 per cent in the past four months and all indicators suggesting a further decline.

Internationally, Malaysian palm oil has corrected by 33 per cent from September and prices aar at a three-year low, at 2017 ringgit a tonne. Crude palm oil prices in India (on the Multi Commodity Exchange) has fallen 28 per cent from September and trades at Rs 396 for 10 kg. Also, in India, refined palm oil has fallen 23 per cent to Rs 472 for 10 kg, from the earlier Rs 610.

Palm oil is primarily used in cooking but is also consumed by the oleo-chemical industry for making soaps/cosmetics and as feedstock for bio-diesel. Food and feedstock consumption are two major price-driving factors. India is a price taker in this oil.

According to Jagdeep Grewal, vice-president, commodity, for the Ahmedabad- based Kunvarji Group, “We expect crude palm oil prices to remain under pressure and it might test the 350-level in the next couple of months before bottoming out.”
 

TURNING BEARISH
Date	Malaysian Palm Oil  Board Crude palm Oil fob Spot Price (MYR/tonne)	MCX  Crude Palm Oil  (Rs/10 kg)
2-Jul-12	3,043.00	567.70
3-Sep-12	2,922.00	551.80
13-Dec-12	2,017.00	396.30
%chg*	-30.97	-28.18
%chg**	-33.72	-30.19
*change over September 2012 **change over July 2012 Source: Bombay Commodities Exchange & Bloomberg Compiled by BS Research Bureau

On reasons for the bearish trend, he quoted the latest report from the Malaysian palm oil board, that the inventory till November was 2.56 million tonnes and expected to surpass three mt by January 2013. The US department of agriculture’s December monthly forecast on soy oil also indicates pressure on availability by suggesting a rise in inventory of soybean oil by three per cent, to three mt during 2012-13.

Suring winter, in India and its neighbours, including China, palm oil is less preferred for use in cooking, since it solidifies at a lower temperature.

Dorab Mistry, director, Godrej International, said his expectation about mineral oil prices were that these were likely to gradually decline and Brent crude oil is expected to trade in a range of $100-115 a barrel. Hence, chances of new subsidies or encouragement to biofuels are dim. Mistry also anticipates the Indian government could impose a 10 per cent duty on crude palm oil and 20 per cent on refined palm oil.