Asia palm oil price vitality may restore oleochemicals buyer confidence

Author: Jackie Wong

2018/11/21

SINGAPORE (ICIS)--Palm oil prices in Asia are showing signs of vitality after a month of unexpected decline partly on the back of a seasonal upswing.

Recovery in palm oil prices may restore buying confidence and lead to some trade activities as buyers begin to restock before firmer feedstock prices provide upward support for fatty acids and fatty alcohols prices.

Some fatty acids and fatty alcohols buyers who have been staying on the sidelines as they await palm oil prices to bottom out are likely to start buying as palm oil prices tend to maintain upward momentum from December all the way to February.

Palm oil production will start to drop following the peak season from July to October.

In addition, trade discussions were previously affected by the fact that most suppliers were reluctant to lower their fatty acids and fatty alcohols offers immediately in line with palm oil price movements as they were holding to materials made with more expensive feedstock and also because they have been expecting palm oil prices to start to firm.

Crude palm oil (CPO) prices rebounded up slightly from $417.66/tonne on 16 November to close at $432.29/tonne on 19 November.

Similarly, palm kernel oil (PKO) prices also rebounded from $631.39/tonne to $643.69/tonne over the same period.

This came after palm oil prices softened unexpectedly for around a month.

Typically, palm oil prices would receive upward support from lower production in November and December after the peak harvest season from July to October.

However, since mid-October, palm oil prices have been on a downtrend.

From 17 October to 16 November, CPO and PKO prices lost around $95.84/tonne and $165.84/tonne in value, dropping to the lowest levels since 2015.

Palm oil production in 2018 is widely expected to return to pre-El Nino normal level, similar to those in 2015. Production in 2016 and 2017 had been lower due to El Nino.

In early November, most participants of the oleochemical markets expected palm oil prices to start gaining seasonal upward momentum as production volume starts to drop.

They were caught by surprised when palm oil prices fell further.

Malaysia’s latest palm oil production, stock and export figures for October, released last week, showed lower than expected exports and higher than expected closing palm oil stocks.

Softening palm oil prices had affected the buying sentiment of the oleochemical market.

Although most market participants expect palm oil prices to stabilise and trend upwards in the coming weeks, some believe there was still room for palm oil prices to drop, particularly for PKO prices which were at one point below $600/tonne in 2015.

Focus article by Jackie Wong