Sipef flagged a “bright” outlook for palm oil prices, saying the potential for a “massive” rise in demand from biodiesel demand, at a time of curtailed production growth, could tell a “very compelling friendly story”.
The tea-to-rubber plantations group forecast that “momentum” may start building in palm oil prices as 2019 nears a close, when the peak output period will have passed for the key South East Asia producing countries, allowing their inventories to decline.
Sipef foresaw a “massive increase in biodiesel demand” ahead, led by Indonesia, the top palm producing country, which is “very likely” from January to introduce B30 – a blend of 30% of the biofuel in transport diesel.
“This is an additional demand from Indonesia alone of 2.5m-3.m tonnes,” the group said, flagging increased blending rates expected too in Brazil, Malaysia and the US.
In Europe, non-mandated consumption of the commodity for biodiesel – ie demand based on margins rather than mandates – will be encouraged by the discount of the vegetable oil to gasoil.
“Is anticipated that Europe will continue its big imports of palm oil to produce biodiesel.”
Meanwhile, palm oil demand in China has “increased strongly” thanks to a knock-on effect of the African swine fever epidemic which, in cutting pig ration needs, is lowering the soybean crush - and so the output of rival edible oil soyoil, as well as of feed ingredient soymeal.
And Sipef said that “in the entire Indian subcontinent” palm oil imports have risen thanks to its “competitive” price, and with stocks there “at a multi-year low, all that oil is being consumed”.
‘Very compelling friendly story’
By contrast, the group was cautious over palm oil output prospects, saying that “production growth could be very low as trees need a resting phase after the great production in 2017 and 2018”.
Yield potential had also been undermined by the knock-on effects of the generally low prices of the past year, which have reduced the incentive to fork out for inputs such as fertilizers.
Furthermore, the dry spell in parts of South East Asia “in the first quarter of 2019 will have its effect” on output in 2020, as will the hangover from the prolonged haze in many major growing areas.
“If all these inputs are added into our models, there could be a very compelling friendly story for palm oil going forward.
“All in all, the price outlook for palm oil is bright as the next months go by.”
‘Default case needs to be settled’
Sipef was also optimistic on the potential for a continued recovery in tea prices, from lows reached around July, thanks to strong supplies and economic instability in Pakistan.
“Some tea growing areas in Kenya are experiencing a prolonged cold and dry spell, which will keep the monthly production figures below those of 2018.
“Therefore, it is expected that prices will move up from current levels, although the strength of this will be limited by the economic situation in Pakistan.”
However, for rubber it flagged the prospect of a continued cloud over the rubber market from the decision by China’s largest rubber dealer, Chongqing General Trading Chemical, to stop trading the commodity.
“The Chinese rubber default case needs to be settled first before any upside can be expected,” Sipef said, although adding that “more balanced” supply and demand dynamics “should prevent the market from dropping further from current levels”.
Sipef issued its comments as it warned that it will “close the financial year with a loss”, saying that “due to the exceptionally lower than expected production volumes for the fourth quarter, especially in Papua New Guinea, the recurring results for the second [half] will not be better than those of the first”.
Its Papua New Guinea palm output plunged by 49% in the July-to-September quarter, hurt by the disruption to harvesting, and crop setbacks, from eruptions by the Mount Ulawun volcano.
“On June 26 and August 3, approximately 6,300 hectares (44.9% of the total plantings) were covered to a greater or lesser extent with a layer of ash and small stones, reaching heights of 15cm,” although a further eruption at the end of last month did not hit the plantations.
Nonetheless, “due to the successive evacuations of more than 5,000 employees and their families, harvesting activities in the other plantings were interrupted several times”.
Sipef shares stood up 1.5% at E4.87 in lunchtime deals in Brussels.