India has become a dumping ground for excess oil
February 4, 2015:
With less than a month to go for the annual palm oil price outlook
conference organised by Bursa Malaysia, market participants are keenly
watching developments in the commodity space including market drivers
such as crude oil, currency, monetary policy and the weather.
As recent as September-October, elevated crude oil prices and reports of
flooding in Malaysia’s oil palm growing regions had raised hopes for
the palm bulls.
But the rally was short-lived following the collapse of the crude market.
Not only has the Gas oil-Palm oil (popularly called POGO) spread trended lower, POGO is currently in the negative territory.
In other words, crude palm oil (CPO) is more expensive than gas oil.
This by itself is a disincentive for diversion of palm oil for
biodiesel, especially discretionary blending.
High inventory
Similarly, reports of production loss from Malaysia’s flooding are also seen as exaggerated. The loss could at worst be less than 500,000 tons, a small fraction of the world production of over 60 million tons and Malaysia’s own output of 20 ml t.
Similarly, reports of production loss from Malaysia’s flooding are also seen as exaggerated. The loss could at worst be less than 500,000 tons, a small fraction of the world production of over 60 million tons and Malaysia’s own output of 20 ml t.
Importantly, the inventory levels are still high, a factor the market
seldom ignores. Worldwide, the opening stock for 2014-15 is estimated to
be over 16 ml t.
Of this, Malaysian stocks hover around the 2.5 ml t mark. One must also
realize that the long-term drivers of CPO have considerably weakened and
therefore prices will struggle to gain traction.
Seasonal factors are likely to come to the support of CPO in this quarter.
Typically, January to March is the lean season when palm oil production
slows; and to create a positive mood for the BMD conference – arguably
the world’s largest for the vegetable oil industry – producers usually
try to talk the market up. Demand outlook for palm oil is mixed.
Dumping ground
Food demand is the mainstay as China and India are the major destinations. India continues to import humungous quantities month after month, and in some sense has become a dumping ground for excess oil.
Food demand is the mainstay as China and India are the major destinations. India continues to import humungous quantities month after month, and in some sense has become a dumping ground for excess oil.
Physical arrivals have been in well over 800,000 tons in each of last
the three months. It is not unreasonable to assume that it is more a
case of stock transfer than actual import.
But this import surge into India is largely neutralized by slowing palm
oil import into China. The Asian major has been importing record
soyabean in the last several months.
In case of India, total vegetable oil inventory – port-based and
pipeline – is an estimated 2.1 ml t, at least a quarter higher than the
position three months ago. In other words, demand growth is unlikely to
be robust.
Energy scenario
On the energy side, given the depressed crude oil prices and uncertainty over the market outlook, both mandatory and discretionary blending outlook is muted. Competition from other oils is another factor.
On the energy side, given the depressed crude oil prices and uncertainty over the market outlook, both mandatory and discretionary blending outlook is muted. Competition from other oils is another factor.
While the demand side looks slightly depressing, on the supply side,
there is the possibility that palm trees could take a break this year.
To what extent production growth will slow is difficult to predict; but
on current reckoning, 31 ml t for Indonesia and 20 ml t for Malaysia
appear achievable.
Surprisingly, analysts focus almost exclusively on Indonesia and
Malaysia, but seem to ignore palm oil production of as much as 8 ml t
(13-14 per cent of total production) coming mainly out of Thailand,
Columbia and Nigeria apart from others.
CPO prices are therefore not going to move up in a hurry from the current levels of Ringgit Malaysia 2,150/t.
(This article was published on February 4, 2015)
没有评论:
发表评论