As alternatives gain market share, palm oil prices will be pressured by a slowing demand.
Prices are expected to fall as palm oil production recovers and imports drop due to price-sensitive consumers. This will reduce the advantage of tropical oil over its rivals even though top producer Indonesia increases biodiesel production.
Benchmark palm futures have lost market share due to the shift of top importers such as India to cheaper alternatives like soybean and sunflower oil.
In recent months, palm oil has traded at a premium to other oils due to the disruptions in supply from top producers Indonesian and Malaysia caused by flooding.
Analysts and industry officials said that palm oil inventories may start to rise in the next few months, as demand falls. This was revealed at a recent conference held in Kuala Lumpur.
Thomas Mielke is the executive director at Hamburg-based Oil World. He said: "I expect stocks to continue rising if demand does not pick up at these price levels."
DEMAND DESTRUCTIONS & HIGHER EXPENDITURE
Mielke stated that the increased palm oil prices are causing buyers to switch from palm oil to soybean oil, which could result in a stock-up when production picks up.
Sanjeev Athana, President of the Solvent Extractors' Association of India, stated that India's palm-oil imports could drop to 7.5 millions metric tons in the 2024/25 market year, which ends in October 2025, the lowest level in five years.
The downward production trend in Indonesia has ended; the recovery period has already started. Dorab Mistry, an analyst, said that he expects a significant increase in production after Ramadan.
Mistry stated that the production recovery and reduced demand could lead to lower prices. Palm oil is likely to trade between 3,600 and 4,100 Ringgit ($814.5 to $927.6) a metric ton in April and November.
The premium for palm oil over soy is already decreasing. This week it was sold in India at a $50 premium per metric tonne, compared to more than $100 one month earlier.
Analysts said that Indonesia's crude oil production will likely rise to 50 millions metric tonnes in 2025, from 48.16million metric tonnes a year earlier, and Malaysia's output may rise slightly to 19.5million metric tonnes.
Fadhil hasan, of the Indonesian Palm Oil Association, stated that despite higher production, Indonesian palm oil exports in 2025 are likely to fall 7.3% compared to a year earlier to 27,35 million metric tonnes as Jakarta increases biodiesel production.
Indonesia is expecting its B40 Biodiesel Programme, which aims to reduce its dependence on diesel fuel imported from abroad, will be fully implemented next month, after initial delays.
Fadhil stated that Indonesian palm oil usage for biodiesel in 2025 is expected to increase from 11,44 million metric tons last year.
He said that the rising biodiesel mandate will continue to reduce surplus for exports. (Reporting and writing by Rajendra Jadhav, Ashley Tang, Naveen Thkral; editing by Ros Russell).
(source: Reuters)
