Domestic Palm oil currently trades with easy tone amid weakness in Malaysian palm oil and reports of imports slowing during the month of May, due to drop in overall demand. Lockdown restrictions were more stringent during March and May months due to which palm oil demand from food caterers and hotel/restaurants etc dropped significantly. Therefore, lower requirements prompted importers to reduce their quantity of purchase. Solvent Extractors' Association reported just few hours back that India's palm oil imports in June fell 18% from a year ago to 562,932 tonnes as refined palmolein imports dropped sharply after the government put curb over overseas purchases of the grade earlier this year.
But broad based view does not appear discouraging for global palm oil market – from pricing perspective. Lower production estimates, improving overseas demand prospects for Malaysian palm oil and tightening inventories of Malaysia do indicate that global market prices, from current levels may remain higher coming months
According to report from the CIMB Research Malaysia's palm oil inventories in June were down nearly 5% from May to 1.94 million tonnes following improvement in export demand after lockdown easing begun in many countries. Due to easing restrictions on easing shipments, overseas demand for palm oil has improved in last few weeks. Since this move has also prompted hotel, restaurant and catering sectors and rise in palm-based biodiesel usage, domestic usage has also improved in the country. All these factors shall be helpful palm oil prices in Malaysia in maintaining firm rates in coming weeks.
According to the median estimate of the oil processing plants, traders and analysts, the June-end stocks in Malaysia were seen at 1.94 million tonnes while production was estimated 8% up at 1.78 million tonnes, the highest since October. Exports in fact surpassed production levels since major buyers India, China and the European Union decided to cover their inventories, which had depleted significantly due to lockdown for 2-3 months. Besides, Malaysia's decision to exempt palm oil from export tax has enhanced competitive edge against its only rival supplier in the exports market i..e Indonesia. Improving trade relations with India has worked out really well as the major buyers has recently finalized number of import deals from Malaysia.
Sources say that palm oil exports from the country were already estimates to rise in the month of June. But in light of sudden increase in corona virus infections in the country, exports pace may slow down to some extent this month. Summing up, under given scenario Malaysian palm oil prices may not observe decent gains in July and will be find difficulty in sustaining higher for next couple of weeks. But chances of sharp depreciation in prices are ruled out.
