Palm Oil prices continue to remain pressured with Benchmark Futures in Malaysia down circa 7% in the current quarter given the backdrop of persistently high inventories and stagnating demand. The market is headed for the 7th consecutive quarterly drop marking the worse sustained decline in prices since 1995.
Exports had staged a commendable performance early in 2019, partly supported by India’s reduction in import duties for crude and RBD Palm Olein to 40% and 45% but a potential policy flip-flop in India and the potential re-imposition of a 10% Palm Oil Development Tax on imports may neutralize any further momentum in driving demand to mirror the 260%-plus rise in India’s monthly import quantum to 350,000 tonnes in May 2019 from 130,000 tonnes in December 2018.
Adding to the bad news is that the seasonal high production cycle is about to start and this could further add to the glut. Production in Indonesia is forecast to climb by about 3 million tonnes in the year to September potentially creating more competition for Malaysian growers and thus adding sustained downward pressure on prices.
In the near term, CPO prices are likely to trade with downward bias in the RM1,850 to RM2,150 in the third quarter of 2019 but there may be a mild price recovery during the last quarter to around RM2,300 per tonne as demand picks up and a potentially muted fallout from the ongoing Sino-US trade tensions as efforts are made to arrive at a mutually beneficial resolve which doesn’t undermine global economic growth.
