07.10.202 (www.spglobal.com) - Indonesia's palm oil exports fell 33% month on month to 2.241 million mt in September, according to vessel and shipment data seen by S&P Global Platts, as higher prices prompted major buyers India and China to focus on Malaysian shipments.
Palm oil production by Indonesia, the world's largest palm oil producer, was also estimated to have fallen 300,000 mt year on year in September as rainstorms and widespread flooding over August and September complicated harvesting activities during the peak production season.
"Lower production vs historical levels as well as the much higher prices are leading to demand rationing at destinations," said Marcello Cultrera, institutional sales manager and derivatives dealer at Singapore-based Phillip Futures.
Palm oil prices have surged 67% over the past last year, according to S&P Global Platts data. This has created two concerns for buyers; procurement in bulk and forward pricing. With lower output and historically high prices, the challenge for buyers was securing feedstock supply or procuring palm physical cargoes, Cultrera said.
Indonesia also ceded some ground to closest rival Malaysia in September as a higher export tax made its cargoes costlier compared with Malaysian palm oil.
Malaysia's September exports were estimated to have surged 38% month on month to 1.605 million mt, TransGraph Consulting's head of research Aditya Jeripotula said.
"We see combined exports from Malaysia and Indonesia in August were around 4.5 million mt and in September just over 3.8 million mt. So overall, we are seeing a month-on-month loss in demand of about 700,000 mt in September," Jeripotula said.
Indonesia's palm product exports in September were however in line with its historical average of 2.3 million mt for the month over 2016-2021, according to Cultrera and Jeripotula's estimates.
The two Southeast Asian countries account for 85% of global palm oil supply, which is found in almost all packaged food, soaps and is used as biodiesel feedstock.
Sentiment fuels prices
Palm oil futures have broken through record highs multiple times in the past week, with front month October futures crossing the MR5,000/mt ($1,195.17) mark on the Bursa Malaysia Derivatives or BMD Oct. 6.
The benchmark December futures contract touched an historic high of MR4,598/mt ($1,099.08/mt) Sept. 30 as supply concerns coincided with a surge in orders from Chinese buyers.
But by the midday close of trade Oct. 7, the December contract had traded as high as MR4,841/mt ($1,157.17) on the BMD.
"After breaking out of a consolidation range last week, palm oil is seen to be in transition to a new pricing position, and traders are cautious about the sustainability of high prices," RHB Futures said in a note Oct. 7.
While some industry watchers expect Indian demand to continue ahead of its festival season due to limited supplies and low stocks, others expressed skepticism that limited production and high demand could prop up palm oil's extended bull run.
"I think the bull run may have more to do with China's energy crunch. Sentiment-wise, palm oil is still bullish given expectations that supply is going to be tight, but current prices are way overbought," said David Ng, a senior trader at Kuala Lumpur-based IcebergX.