Is palm oil being damned by faint praise?
Certainly, some of the talk surrounding the vegetable oil on Thursday sounded good at first blush, but was not quite so positive on closer examination.
Take comment from the world’s largest producer of palm oil, FGV Holdings, which said that the crude palm oil (CPO) price “is expected to be favourable for the rest of the financial [ie calendar] year”.
Such an expectation was “driven by lower production and the impetus provided by the announcement of B20 implementation during [Malaysia’s] Budget 2020,” the Malaysia-based group said.
(B20 is a 20% blend in diesel of biodiesel, which is made from vegetable oils, meaning palm in South East Asia, where most of the world’s CPO is produced.)
“Indonesia’s commitment to B30 is also a positive factor that will reduce stock levels of CPO.”
However, accompanying this comment was a forecast of prices averaging 2,200-2,400 ringgit a tonne in the last three months of 2019.
That does not look positive after the rally that Kuala Lumpur palm oil futures have enjoyed after hitting a four-year low of 1,916 ringgit a tonne in July.
Prices having been above 2,400 ringgit a tonne for more than a month, and touched a two-year high of 2,755 ringgit a tonne last week, making FGV’s outlook numbers less positive looking than its words.
‘Balance to continue improving’
Then there are comments by Fitch Ratings too, which said that it expects Malaysian palm oil prices to average $50 a tonne higher in 2020 than last year.
Again, the ratings agency quoted slowing supply growth, and rising consumption of palm oil for biodiesel.
“We expect the demand-supply balance to continue improving,” Fitch said.
However, its forecast would take the average 2020 price to $550 a tonne, or the equivalent of 2,295 ringgit a tonne at current exchange rates, again a figure well below the futures curve.
Certainly, Kuala Lumpur’s benchmark February palm oil contract was unimpressed, standing unchanged at 2,687 ringgit a tonne as of 09:30 UK time (03:30 Chicago time), and down 1.7% for the week so far.
Earlier, January palm oil futures on China’s Dalian exchange settled down 0.3% at 5,432 yuan a tonne down 4.4% in three sessions.
With China a hefty palm oil importer, Dalian futures are closely watched in Kuala Lumpur, and elsewhere.
However, one potentially negative signal for Chinese palm oil demand has flashed with data last week showing that China’s inventory of breeding sows rose in October, the first monthly increase since April 2018.
Chinese palm oil imports have been boosted by a knock-on effect of African swine fever, which in drastically shrinking the country’s swine herd has reduced demand for feed ingredients such as soymeal, in turn undermining the soybean crush, and so output of soyoil too.
(Palm oil is interchangeable with soyoil in many uses, and generally cheaper.)
Interestingly, Dalian soymeal futures have outperformed this week, in shedding just 1 yuan a tonne, to 2,751 a tonne, for May delivery.
Dalian soyoil for May has dipped 2.1% to 6,222 yuan a tonne.