Palm oil sellers holding back

Malaysian crude palm oil was sold at US$660-$700 a tonne although a supply squeeze has spurred plantations to hold back some stocks despite buying interest for nearby shipments, traders said yesterday.

Top buyers like India were in the market, looking to net some cash market bargains for September and October deliveries in time for the festival season after benchmark crude palm oil futures dropped about 3 per cent this week, dealers said.

“We sellers are convinced that prices are too low and not reflective of tight inventories and strong demand, so we want to hold back,” said a plantation owner in a key palm oil producing region of Johor in the southern Malaysia.

Palm oil millers and estates say they are looking for a RM30 to RM40 premium over current spot palm oil futures, which are now trading at RM2,320 a tonne. Until then, they are now holding on to 10-20 per cent of their production.

Production in September normally rises to 1.5-1.6 million tonnes due to a seasonal uptick in output but growth is seen to be much weaker due to earlier dry weather sapping yields and Muslim fasting month of Ramadan when estate workers take leave.

Reflecting strong festival demand earlier on and weak production, Malaysian palm oil stock inventories has been edging lower and traders expect 1.28-1.30 million tonnes, which should ideally boost palm oil markets.

But prospects of a better US soy crop and jittery equities markets have weighed on palm oil prices, traders and analysts say.

Dealers said they were turning to crude palm oil from rival and top producer Indonesia as output was growing and palm estates there were willing to sell. Indonesian crude palm oil prices retail at US$660 a tonne, roughly the same as Malaysian variants.

The price of refined palm oil products has also weakened due to laggard Malaysian futures market and a lack of new demand from China, which buys large quantities of refined, bleached and deodorised (RBD) palm olein used in cooking oil.

“Refiners are suffering. They have old stock of crude palm is oil contracted at higher prices and once the refining process done, demand is not there and refined palm oil products prices are now much lower,” said a refiner based in Singapore.

He estimated that refiners were seeing negative margins of about US$10 a tonne for RBD palm olein, which is now sold at US$705 a tonne for September, for instance. No other details were given.

Reflecting a possible trend of declining Chinese demand, Malaysian palm oil shipments in August for mostly refined palm olein to China fell 7.7 per cent to 404,997 tonnes in August compared to a month earlier, according to cargo surveyor SGS. Source : Business Times

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