Asian palm oil prices hit over-two-month high amid production decline, demand surge

Asian crude palm oil prices hit an over-two-month high on July 10, driven by higher Bursa Malaysia Derivative futures due to lower palm production in June, and an anticipated rise in demand.

Platts, part of S&P Global Commodity Insights, assessed CPO FOB Indonesia for July loading at $1,031/mt July 10, unchanged from the previous day, marking a 3.73% month-over-month increase. The price was last assessed higher on April 24 at $1,037.5/mt.

Platts assessed CPO CFR West Coast India at $1,075/mt July 10 for July shipment, up $2.5/mt day over day, and a 4.12% increase month over month.

"Physical palm oil prices have been increasing in line with the current uptrend in BMD CPO futures," a Kuala Lumpur-based trader told Platts.

Benchmark third-month crude palm oil futures on the BMD exchange rose 0.89% to MR4,183/mt ($976.10/mt) during the midday close on July 11 -- reflecting a 9% month over month increase.

"Funds are strategically positioning by going long on palm oil on BMD, pushing prices higher, while also shorting soybean oil," a trader said.

Current higher prices are being supported by lower palm oil production in Malaysia and Indonesia in June and robust demand from India due to palm oil's steep discount to soybean oil, market sources told Platts.

Another factor contributing to the increase in palm oil prices has been the elevated prices of competing oils, such as soybean oil and sunflower oil.

Palm oil prices are influenced by movements in soybean oil markets as they compete for share in the global vegetable oils market.

Production trend

Indonesia's palm oil production for June is anticipated to be 8%-10% lower compared with May, sources said.

Data from the Malaysian Palm Oil Board released July 10 showed June palm oil production fell 4.48% month over month to 1.69 million mt. However, ending stocks increased 2.41% in June to 2.03 million mt, while exports decreased 10.52% to 1.26 million mt.

Indonesia and Malaysia account for 85% of the world's palm oil supply.

"Malaysian palm oil production is expected to recover from July, with peak production months anticipated in August and September," a source said.

Another source added that due to seasonality, prices weaken during the July-October period when market supply surges, then rebound from November onward due to seasonally lower production.

Market participants now await July supply and demand figures for clearer market direction.

Demand rise expected

Demand from the largest palm oil buyer, India, will rise in the market and is expected to provide support to the prices.

"India had canceled lots of refined palm oil after the import duty reduction on crude oils in early June. Hence, India will have to import more vegetable oil during the upcoming festival season," a source said.

Sources also highlighted that India has yet to fulfill its demand for August and September, which will lead to increased buying interest when buyers start covering for these months.