Low stocks to support palm prices in coming months: top analysts

JAKARTA: Palm oil production will likely remain soft until at least the first half of 2022, which would continue to provide cushion for prices in the coming months, despite caution of reaching peaks, top industry analysts said on Thursday.

Prices of the versatile vegetable oil have risen sharply this year, due to demand returning amid an easing of pandemic restrictions, coupled with disappointing output from major producers Indonesia and Malaysia that pushed prices to record highs.

“Prices would be supported in the next six months, they will continue to be supported by the global situation and still low stocks,” Thomas Mielke, head of Hamburg-based analyst firm Oil World, told a palm oil conference.

However, he said the prices may have peaked and there is a potential price correction between now and June, which could bring palm oil futures to as low as 4,000 ringgit ($946.07) per tonne.

The Malaysian palm benchmark price, which hit a historical high in October, traded at 4,567 ringgit a tonne on Thursday.

At the same conference, Dorab Mistry, director of Indian consumer goods company Godrej International, said that Malaysian palm oil production was only expected to recover around May.

Output from Malaysia this year was seen “at best” at 18 million tonnes and next year at 19 million tonnes, Mistry said. In rival Indonesia, 2022 production is seen up by at least one million tonnes, he said.

Mistry expected the benchmark contract to trade between 5,000-5,400 ringgit a tonne between now and February before sliding to between 4,800 and 4,000 ringgit in April to September.

Productions have been disrupted by unfavourable weather and labour issues in Malaysia due to pandemic-linked border closures, said James Fry, chairman of commodities consultancy LMC International.

Meanwhile, Mistry noted fertilizer price increases could affect small holders who makes up a big chunk of Indonesian production.

“It’s only by towards the very end of 2022 that (production) becomes positive. That’s why I anticipate three years, from 2019 to 2022, with no growth in palm oil output from Malaysia and Indonesia,” Fry said.