FocusWeaker regional demand to slow Malaysia Q3 palm oil exports

07 July 2010 17:12  [Source: ICIS news]

By Nurluqman Suratman and Serena Seng

SINGAPORE (ICIS news)--Malaysia's palm oil exports may slow down in the third quarter as demand may slip from key regional buyers amid fears of weakening economic activities, market sources said on Wednesday.

Demand usually picks up in the months leading to the national holidays in China and India, but exports to India showed a near 46% decline in palm oil imports in the first two weeks of June compared to the same period in the previous month, they said.

Palm oil is typically used in the manufacture of food products. It is also used as feedstock in fatty acids, fatty alcohols and biodiesel production.

China will celebrate its Mid-Autumn Festival on 22-24 September and its National Day week on 1-7 October. India, on the other hand, will observe Ramadan in August, and the Eid holidays in September.

“The run-up to Ramadan and the festive holidays would not be sufficient to see the kind of rise in exports that we have seen for the last couple of months,” said a palm oil trader.

Producers in Malaysia were expecting stockpiles of CPO to increase in the third quarter as demand from China, the biggest importer of the product in Asia, may not hold strongly, he said.

Malaysia is the second largest palm oil producer in the world and supplies almost all of China’s palm oil needs.

Recent economic data from China were not encouraging, as activities in the manufacturing sector slowed for the second consecutive month. India, on the other hand, just had a nationwide strike on Monday that disrupted business operations in certain parts of the country.

Palm oil exports to other regional destination may also soften, as concerns about a possible double-dip recession in the US, as well as the ongoing eurozone debt crisis, continued to plague the equities and commodities markets, industry sources said.

Take-up of Malaysian palm oil was fairly strong in May due to a combination of strong production and falling prices, based on official data.

Palm oil shipments posted a 6% month-on-month growth to 1.36m tonnes, reversing the 8% fall recorded in April, and grew roughly at the same pace as production, according to data from the Malaysian Palm Oil Board (MPOB). Malaysia produced 1.39m tonnes of palm oil in May, official data showed.

The export numbers got a big extra push from China, which nearly doubled its imports of Malaysian palm oil after banning imports of soybeans from Argentina, said the trader.

“People are buying as demand had improved from April due to the regional festivities as well as higher demand from the industrial sectors,” said a Malaysian producer.

CPO prices, meanwhile, had remained under pressure due to oversupply, with September CPO contracts closing at Malaysian ringgit (M$) 2,301/tonne ($719/tonne) on Tuesday. It hit an intra-day low of M$2,287/tonne - the weakest level for the benchmark contract since mid November.

Prices had been falling over the past two months from an average of M$2,632 in March, based on available MPOB data, as production continued to grow.

($1= €0.79 / $1 = M$3.20)

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By: Nurluqman Suratman

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