Palm oil prices fell 3.5% amid rising inventories and reduced supplies to India

On the first day of trading after the long New Year’s weekend in Malaysia, palm oil prices fell sharply, as expected, on data about reduced exports from Malaysia and Indonesia and higher inventories in India.

April palm oil futures on Bursa Malaysia tumbled 3.6% to 3,753 ringgit/t or $881/t yesterday, the biggest intraday drop in 6 weeks.

During January 1-20, compared to the same period in December, Malaysia reduced its export of palm oil by 38.5%, and Indonesia reduced its export by 8.5% in 2022.

In India, stocks of vegetable oils at the beginning of January reached a record 3.2 million tons compared to 1.7 million tons a year ago.

As a result, palm oil imports may decline from 3.1 million tons in Q4 2022 to 2.2 million tons in Q1 2023. Large inventories and low demand are forcing refiners to cut purchases and focus on production.

The reduction in supplies to India will not be offset by increased imports to China, which has stepped up soybean purchases at the end of the year and will have a large supply of oil, adding pressure to vegetable oil prices.

March soybean oil futures on the Chicago Stock Exchange fell 0.8% to $1,332/t yesterday (-6% for the week) on news of improved weather in Argentina.

According to the Trading Economics platform, the prices of sunflower oil for delivery to buyers fell to $1,160/t CIF, but they are supported by a reduction in offers from Ukraine and the Russian Federation in the current season. Therefore, if under the pressure of low palm oil prices and a record soybean harvest in Brazil, soybean oil quotes will fall further, then sunflower oil prices will return to the previous “status” of premium oil compared to soybean oil, especially in view of the reduction in production and the sharp rise in prices olive oil.

The increase in sunflower oil prices limited the growth of oil processing in the EU, caused by the increase in supplies of raw materials from Ukraine due to the shutdown of enterprises due to interruptions in energy supply.

According to the European Association of Vegetable Oil Producers (FEDIOL), in December, the volume of rapeseed processing in the EU reached the highest level since August 2022 – 1.7 million tons, soybean processing – 1.1 million tons (which is 30% higher than the November figure, but 7% less than in December 2021), sunflower processing – 511 thousand tons, which is 6% more than in November.

Demand for palm oil usually falls in winter as it hardens at low temperatures, so demand for Ukrainian sunflower oil could rise, especially with India increasing imports in January to 400,000 tonnes, which will double December supplies.