US farm officials called time on the drop in palm oil
prices, citing the turn in the production cycle in South East Asia to a
seasonal low at a time when values near their lowest since 2010 are attracting
a "keen interest" from importers.
The US Department of Agriculture said that palm oil prices "could
soon stage a modest rally" after a fall which drove Kuala Lumpur to a two-year
low of 2,220 ringgit a tonne in December, near where they remain, down 30% over
the past year.
While stocks of palm oil remain near record highs in Malaysia,
the second biggest producing country, and "are reported to be even larger" in
top-ranked Indonesia, where palm data is less accessible, output is suffering a
Malaysia on Monday reported a 19% slide in palm oil production last month, from January.
Meanwhile, low values, at among their lowest since August
2010, are attracting buyers whose access to other oilseeds, such as soyoil, has
been hampered by poor crops last year.
"Many importing countries are developing a keen interest in
these low palm oil prices," USDA analyst Mark Ash said, in follow-up comments
to the department's Wasde crop supply and demand report released on Friday.
Higher imports by India, the top vegetable oil buyer, "are
inevitable" despite a rise in import duties to 2.5%, from zero, and a weakening
rupee, which makes purchases of assets denominated in other currencies more
(While Kuala Lumpur hosts the benchmark palm oil futures
market, cash trading in the vegetable oil is typically undertaken in dollars.)
"The main reason is that total vegetable oil consumption for
India is expected to increase 7% in 2012-13 to 18.1m tonnes," Mr Ash said.
"At the same time, domestic production for oilseeds and
vegetable oils is estimated up by only 0.4% this year, which would leave a
considerable deficit to be filled by imports."
India's raised palm oil import duty "may have little impact",
given that it is being more than offset by lower prices.
European Union demand for palm oil may also show an
especially strong pick-up from the spring, when higher temperatures allow the
use of biodiesel based on the vegetable oil.
Palm's relatively high freezing temperature prohibits the
use during temperate winters of biodiesel based on the oil.
"When it warms up, trade could accelerate because the cost
of palm oil-based biodiesel in Europe compares favourably with petrodiesel," Mr
Furthermore, the "historically-large price discounts for
palm oil compared to soyoil and other oils could quickly raise its use in the
EU edible oil market as well".
Malaysian data showed its exports to India rising 9%
month-on-month to 188,000 tonnes, with shipments to Europe soaring 40% to
Imports by the Netherlands were particularly strong, up 43%
to 169,000 tonnes, the biggest monthly total in more than four years.
However, exports to China, typically the second biggest palm
purchaser, fell 12% to 237,000 tonnes, reflecting a rise in inventories at
Chinese ports to 1.4m tonnes, attributed to stockpiling late in 2012.