Palm oil under pressure amid US relief talks

White House mulling ways to provide relief to oil refiners amid pressure from labour unions and US senators


TALKS on the relief for US oil refiners on biofuel blending mandates have spooked the commodity market, dragging down futures of edible oils, including palm oil.

CGS-CIMB Securities Sdn Bhd plantation analyst Nagulan Ravi said the drop in the edible oil futures contract prices has trickled down to palm oil, resulting in a down cycle for the month.

“Palm oil prices were projected to be in the upcycle, but the talks of US biofuel (relief) over the weekend had impacted the soybean oil. It then trickles down to palm oil and edible oil,” Nagulan told The Malaysian Reserve.

He, however, expects the fall in palm oil futures would not be a deep plunge with an in-house projection staying at a supportive level despite the market jitters.

“It is hard to say at this juncture how long the decline will be. Nevertheless, our estimation remains the same and if the prices to be further pushed down, we believe they would not exceed the RM3,500 level, which is still quite a good support,” he said.

Palm oil futures had dropped to the lowest level since April, recording its longest losing streak in almost five months due to waning demand from India.

Yesterday, the palm oil futures contract trading on Bursa Malaysia Derivatives Exchange plunged by RM255 for September delivery to RM3,370.

At 7pm yesterday, the soybean price for July 2021 on Chicago Board of Trade (CBOT) declined to US$14.81 (RM60.94) a bushel, while corn was down by 17.50 cent to US$6.67 a bushel for the same month delivery.

Reuters reported that the White House has been pondering on ways to provide relief to oil refiners amid pressure from labour unions and US senators on the assistance.

Palm oil prices could further drop as production starts to ramp up, exacerbated by a potential lower demand from India, Malaysia’s main palm oil importer, due to the Covid-19 outbreak.

“For May, we saw the country’s export of palm oil drop, and we forecast an affordability issue as India could be buying what they need.

“So, there is a demand element to it where people push forward their buying,” the analyst said.

CGS-CIMB maintained its crude palm oil (CPO) forecast of an average of RM2,900 per tonne for the year and RM3,500 per tonne for the second half of this year.

Meanwhile, Singapore-based Palm Oil Analytics owner and co-founder Dr Sathia Varqa believes any recovery to the drop will be short-lived as Malaysia enters a high production cycle in the second half of the year.

“The CPO trading is highly bearish as the market assesses a higher production outlook. Malaysia goes into a higher CPO production cycle from June and production peaks from August to September.

“Thus, exports are likely to improve from the sharply declining cash prices. The CPO is probably dragged by the lower soft oils on the CBOT from improving soybeans planting weather in the US and expanded sunflower oil planting acreage in Ukraine.”

He added that CPO prices would recover when export demand is solid and production slows, keeping stocks to below two million tonnes.