According to the monthly supply and demand report released by Malaysian Palm Oil Bureau (MPOB) on March 11th, Malaysia’s palm oil production in February decreased by 10.1% to 1.26 million tons, imports increased by 13.8% to 33,000 tons, exports decreased by 24.7% to 1.016 million tons, domestic consumption increased by 7.4% to 378,000 tons, and domestic inventory decreased by 5.0% to 191.9. The output in the report is in line with the MPOA forecast, which is higher than that of Bloomberg and Reuters, but the decline of export exceeds that of Bloomberg and Reuters. On the whole, MPOB’s report is close to neutrality, which shows that palm oil supply and demand are weak, and the inventory adjustment path has become the focus of attention.
After the Spring Festival holiday, oils and fats ushered in a wave of rebound, especially palm oil, which was very sharp, and soybean oil and vegetable oil also increased with palm oil.
Palm oil stocks in global producing areas continue to decline.
Palm oil is currently in the production reduction season, and the inventory level of Malaysia and Indonesia in the producing areas continues to decline. Malaysia’s palm oil inventory was 2.45 million tons in October last year, and it has dropped to 2.02 million tons at the end of January. Before the release of MPOB2’s February report, the agency estimated that Malaysia’s inventory at the end of February was around 1.92 million tons. In Indonesia, it began to go to the warehouse in May 2023, and the inventory dropped from 4.52 million tons to 3.15 million tons at the end of 2023, which was the second lowest level in eight years. Indonesia’s inventory data will only be released until the end of December 2023. Considering the production reduction season in January and February, Indonesia’s current inventory may be less than 3.15 million tons. At the same time, the stocks of oils and fats in India and China, which are important sales areas, are also declining, and the decline rate is not small.
In short, the low inventory level supported the rebound of oil prices. From the perspective of the disk, palm oil is the leader in the rise of oil and fat. After the Spring Festival, the position of domestic 2405 contract increased from 368,000 lots to 516,000 lots, and the price rose from 7,300 yuan/ton to 7,800 yuan/ton. In the same period, soybean oil holdings decreased by 10,000 lots, from 7,200 yuan/ton to 7,650 yuan/ton. In addition, at the recently held 35th Malaysia Palm Oil and Laurel Oil Price Outlook Conference, some heavyweight guests made comments on the bullish palm oil price, which also affected the disk price.
Rebound of Brazilian soybean premium raises soybean oil cost.
The rebound of Brazilian soybean premium has increased the cost of domestic oil. There are two main reasons that affect the import cost of soybean, one is the price of CBOT soybean, and the other is the premium.
Due to the large downward price in the previous period, CBOT soybeans have stopped falling and rebounded recently. It is unrealistic to expect a large decline in CBOT soybeans when the cost of soybeans in the United States is approaching and the output of soybeans in South America is basically fixed. The short covering action of managing funds is the best illustration of this.
The rebound of Brazil’s soybean premium has increased the import cost of soybean and the cost of soybean oil to some extent. The CNF quotation of Brazilian soybean in May rose from 30 cents/bushel on January 31st to 105 cents/bushel. The rebound of CNF quotation made the market sentiment of oil meal improved obviously, and both oil and meal in the inner plate began to rebound. Oil meal rebounded, and the profit was improved. China actively purchased Brazilian soybeans, forming a positive feedback on Brazilian soybeans. In the short term, the premium of Brazilian soybeans is easy to rise and difficult to fall. It is necessary to wait for Brazil to harvest more soybeans to put pressure on the storage capacity, or wait for Argentina’s soybeans to compete with Brazilian soybeans when they go on the market.
If Brazilian soybean premium and CBOT soybean are difficult to go down in the short term, then oil has good support in the short term.
Continue to pay attention to the marginal change of palm oil supply and demand
Palm oil is the dominant oil market, and its marginal change of supply and demand is what we need to pay most attention to.
On March 11th, MPOB released the Malaysian palm oil report in February. The output in the report was in line with MPOA’s forecast, which was higher than that of Bloomberg and Reuters. However, due to the decline in exports exceeding that of Bloomberg and Reuters, the final inventory was almost in line with their forecast. Overall, the MPOB report is close to neutrality. As can be seen from the data in the report, Malaysia’s palm oil production in February was basically the same as that in the same period of last year, and it was also basically the same as the average value in the past 15 years. Although the output decreased significantly month-on-month, it still belonged to normal seasonal fluctuations. In addition, the decline of exports is very alarming, and the monthly decline of exports close to 25% is rare, which reflects that the price-performance ratio of palm oil has dropped significantly compared with other oils and fats, and international buyers have reduced the import of palm oil. It can be expected that Indonesia has suffered the same situation with a high probability.
According to the historical data of the past 15 years, the palm oil production in Malaysia increased in March, with an average increase of 180,000 tons. Considering that Ramadan lasts for 29 days from March 12 to April 9, 2024, during Ramadan, working hours will be shortened, which should have a certain impact on palm oil production. Therefore, the palm oil production in Malaysia may not reach 180,000 tons in March, but the month-on-month output should still increase slightly. In addition to output, we also need to pay attention to export volume. In March, Malaysian exports may continue to maintain a low level, because palm oil is still not cost-effective. Demand countries such as China and India have reduced the purchase of palm oil. If you want to verify the data, you can observe the high-frequency data released by shipping agencies.
According to the data of AmSpec, an independent inspection agency in Malaysia, Malaysia’s palm oil export volume was 325,543 tons from March 1 to 10, compared with 306,432 tons in the same period in February, an increase of 6.24% from the previous month. According to the data of ITS, Malaysia’s palm oil export volume was 382,640 tons from March 1 to 10, an increase of 6.8% from the previous month. According to SGS data, Malaysia exported 299,184 tons of palm oil from March 1 to 10, which was 8.1% lower than the 325,524 tons exported in the same period in February. There are great differences among the three institutions on the export data of Malay palm oil from March 1 to 10, and the high-frequency data of export fluctuates greatly. It is difficult to predict the overall situation in March only by observing the export volume in the first half of the year, and it is necessary to wait for more high-frequency data verification.
Due to the uncertainty of Malaysian palm oil production in March, especially the export volume, it is difficult to judge whether March is the turning point of inventory change, but there should be no obvious decline in Malaysian palm oil inventory in March. When palm oil production further increases in April, if the price of palm oil still has no advantage, then the demand will shrink, and April will be the turning point of palm oil inventory in the producing area.
Oil and fat show a wide oscillation trend in the short term.
The medium and long-term supply of oil is still abundant, but the bottom is already there. From the perspective of supply, according to GAPKI’s data, the output of palm oil and palm kernel oil in Indonesia is expected to increase by 5% to 57.6 million tons in 2024. MPOB predicts that Malaysia’s crude palm oil production will reach 18.75 million tons in 2024, up from 18.55 million tons in 2023. Overall, palm oil production in global producing areas is expected to increase in 2024. In terms of soybean oil, according to the USDA’s forecast of global soybean in 2023/2024, South American soybeans are abundant, and the potential soybean oil supply has also increased greatly. The output of rapeseed decreased only slightly. From the demand point of view, in addition to the increase in oil demand brought about by economic growth, there are also countries such as Brazil and Indonesia that have increased demand for biodiesel. Generally speaking, the supply and demand of oil are generally balanced, so it is expected that oil will maintain a wide oscillation trend.
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