Vegetable oil market: Competitiveness declines, CPO price sinks

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Bisnis Indonesia

27 April 2023

By: Yustinus Andri & Sri Mas Sari

Jakarta -  The price of palm oil on the futures market is consistently on a downward trend due to reduced demand after losing some of its competitiveness from other vegetable oils. 

The crude palm oil (CPO) contract for July delivery—the most active contract—on the Malaysia Derivatives Exchange closed 1.8% lower at 3,571 ringgit per tonne on Wednesday (26/4). Approaching Eid al-Fitr, signs of CPO decline began to appear. The Malaysia Derivatives Exchange then closed for the holiday from Friday (21/4) until Monday (24/4). 

Palm oil is now on course for its lowest closing since late March. Weaker demand was seen in Malaysia’s exports which plunged more than 18% to 927,331 tonnes in the first 25 days of April compared to the previous month, according to cargo surveyor AmSpec Agri as quoted by Bloomberg. 

Meanwhile, Intertek Testing Services data showed Malaysia’s exports in that period fell 14% because sales to India dropped 32% and to China down 20%. 

Also based on data from Intertek Testing Services, Indonesia’s exports of palm oil and its processed products fell to 1.96 million tonnes in March 2023 after exceeding 2 million tonnes the previous month. 

Specifically for CPO, the export in March fell to 92,200 tonnes from 101,792 tonnes in the previous month. Furthermore, export of RBD palm olein was down from 900,360 tonnes to 702,954 tonnes, while export of RBD palm oil fell from 432,974 tonnes to 372,310 tonnes. 

By destination country, the decline in Indonesia’s exports occurred in India and China. Shipments to India, which in February reached 378,883 tonnes, decreased to 333,084 tonnes in March. Exports to China also fell from 378,883 tonnes to 333,084 tonnes. 

Meanwhile, according to AgFlow data, India imported 1.45 million tonnes of vegetable oil, while China purchased 0.9 million tonnes in January-March 2023. India imported 600,000 tonnes of vegetable oil from Indonesia, followed by Argentina (300,000 tonnes), Malaysia (200,000 tonnes), Ukraine (160,000 million tonnes), and Brazil (83,500 tonnes). India is likely to import around 14.37 million tonnes of vegetable oil during the October 2022-September 2023 marketing year. 

On the other hand, soybean oil, CPO’s closest substitute for food and fuel, fell for the fifth day on Tuesday after hitting its lowest level in a month on the Chicago Board of Trade the day before. This movement marked the longest decline since December due to unfavourable weather in the United States. The price of soybean oil for July delivery strengthened slightly by 0.3% to US$0.5 per pound on Wednesday. 

Head of Trading Strategy and Hedging at Kaleesuwari Intercontinental Gnanasekar Thiagarajan said the weak CPO sentiment stemmed from losses in the external market. Palm oil must catch up with soybean oil. 

According to him, the overall picture for palm oil looks bearish due to weaker Malaysian exports and the apparent pressure on soybean oil. The only boon, he said, was slightly better exports to India in March. 

“However, it is unlikely to last because palm oil is no longer as cheap as soybeans, and sunflower oil is becoming competitive,” he said. 

According to him, the 3,475 ringgit level is an ‘important support’ for palm oil and a break below it would pave the way for a sharper decline to 3,250 ringgit. 

CPO futures have fallen in 11 of the last 14 sessions due to demand concerns and expectations of rising production from Indonesia and Malaysia, the world’s two biggest producers. The price of palm oil has deteriorated by 12% thus far from its position earlier this year. 

India shifts

Bisnis.com previously reported that India is shifting CPO consumption to soybean oil and sunflower seed oil because non-tropical oils have recently become cheaper. 

Indonesia’s policy of tightening restrictions on CPO exports with domestic market obligation (DMO) starting in February has caused the price of this commodity to increase. 

As a result, Indian importers choose to buy soybean oil and sunflower seed oil instead, which have more attractive prices. Signs of the shift in consumption are evident in the Indian importers’ decision to cancel the purchase of 75,000 tonnes of CPO, which is said to be the first in several years. 

In comparison, CPO imports for May delivery in India are currently offered at US$1,050 per tonne, including product cost, insurance, and freight (CIF). Previously, CIF CPO prices were traded at around US$1,000-US$1,010 per tonne. 

“Indian buyers are replacing palm oil with soybean oil and sunflower oil for delivery in May,” said Rajesh Patel, partner at GGN Research. 

Meanwhile, India’s palm oil imports in May are expected to fall to 700,000 tonnes, compared to an average monthly import of 879,000 tonnes.