Cautious views on palm oil exports

While exports of crude palm oil (CPO) have been unexpectedly strong in the first three months and so far in April, analysts remain wary of the sustainability of demand due to the unprecedented global recession.

Maybank Investment Bank, which remains cautious on the sector, said in a research report dated Monday that exports in March to price-sensitive economies of Pakistan and India were “notably lower”.

But in total, exports of Malaysian palm oil products for the first 10 days of April rose 8% to 399,703 tonnes from 369,265 tonnes shipped from March 1 and 10, cargo surveyor Intertek Testing Services said on Friday.

Another cargo surveyor, Societe Generale de Surveillance, reported a 3.7% rise to 391,223 tonnes for the same period.

Together with news on Friday that stockpiles in March had fallen 13% to 1.36 million tonnes – its lowest level since July 2007 – this prompted CPO futures prices to rise 8% in the past two trading days.

Of the top five export markets, demand from the United States and European Union (EU) looks stable, but China and India are more unpredictable, while Pakistan has newly joined the ranks.

Exports to India tapered off in February and March at 125,214 and 78,364 tonnes respectively, versus December and January when they were 259,937 and 203,080 tonnes. Even so, the last two months’ figures do not look too bad considering last year’s monthly average of only 80,890 tonnes.

Exports to China are recovering to their previous 300,000-tonne-plus levels in February and March, rising from a low of 154,267 tonnes in January.

An analyst at a bank-backed brokerage said China was building up its commodity stockpiles as part of its stimulus package, “while also looking for a decent inventory level to protect against market fluctuations.” Therefore, if prices shoot up it may drop again.

As for India, users are stocking up in anticipation of a rise in tariffs on CPO, but last month the Indian government lifted the tariff on soyoil instead.

The analyst said with the month-long Indian general election expected to continue into mid-May, there were no expectations of any import tariff on CPO until at least then.

Except for a jump to 232,106 tonnes and 244,182 tonnes in October and December 2008 respectively, exports of CPO to the EU remained pretty steady at about the 100,000 to 150,000 tonnes.

CPO exports to the region are not expected to be affected much by the union’s new biodiesel regulation, EU Reneweble Energy Directive, that imposes stricter restrictions on carbon savings.

“The EU has never really been that enthusiastic on using palm-based biodiesel, so there is not much of an impact from the new rules,” the analyst said. “They are using about 50% of their rapeseed oil production for biodiesel.”

As for the United States, Malaysia’s exports are being maintained at 80,000 tonnes a month as food producers there are moving towards using non-transfat oils.

As for Pakistan, CPO exports from Malaysia in the first three months totalled 553,446 tonnes, almost doubled that in the same period of 2008.

The analyst believes Malaysia’s efforts to form better trade ties with Pakistan are the main reasons for the improvement.

On CPO futures, Interband Group palm oil trader Jim Teh believes that prices are speculative at present. “As exports improve, stock levels will fall because production would definitely not be able to catch up so fast. Together with the rising equities market, speculation is entering the market,” he said. “It is good for the plantation owners but not so much for the buyers.”