by Agrimoney.com
A revival in palm oil prices on Wednesday may not herald sustained recovery, despite weakened output prospects, analysts said, flagging the headwinds of strong output of soyoil and softened Chinese and Indian demand.
Palm oil for October delivery, the benchmark contract, closed up 1.0% at 2,252 ringgit a tonne in Kuala Lumpur, on Wednesday, following five straight negative sessions in which benchmark futures tumbled more than 7%.
However, the rally offered an opportunity to sell rather than buy, Phillip Futures said, flagging the prospective boost to supplies of vegetable oils from strong US and South American soybean crops.
"We see this rally as just a bear rally, and a good opportunity to sell into strength," Phillip Futures analyst Sim Han Qiang told Agrimoney.com.
Standard Chartered cut by up to 300 ringgit a tonne its forecast for palm oil futures.
Output slowdown
Production prospects for palm oil have actually decreased, with analysis group Oil World trimming to 19.2m tonnes, from 19.6m tonnes, its forecast for Malaysian output in 2013.
For Indonesia, the top ranked producing country, production growth this year may be constrained to some 6.7%, taking it to 28.7m tonnes, Standard Chartered said.
"We note that the market is beginning to drift towards the 28m-29m tonne mark for Indonesia's 2013 output, compared with 30m-31m tonnes at the start of the year," StanChart analyst Abah Ofon said.
Chinese consumption worries
However, with output of rival vegetable oils growing, Oil World forecasts production of the eight main edible oils rising 3.4% to 159.5m tonnes in 2013-14, compared with a 3.1% rise to 158.7m tonnes in consumption.
That looks set to increase stocks by 2.6% to 21.4m tonnes, Mr Sim noted, flagging the brake on demand hopes reflected by lower Chinese economic growth.
The transition by China from an economic model based around trade growth to one stressing domestic consumption "will be tough, meaning slower growth", with an impact on palm oil demand, he said.
Crude vs refined
Mr Ofon too noted "renewed concerns about demand from China", but highlighted more the danger to orders from India, where a weak rupee was, in making imports more expensive, adding to the disincentive to purchase.
Already, margins for Indian processors of refining crude palm oil had turned negative, cutting capacity utilisation rates at mills to 35% from the typical 50%, and forcing consumers to buy more expensive, already-refined product.
"We believe the combination of tight margins and higher import costs is unsustainable for the industry and will contribute to inflation expectations," Mr Ofon said, noting talk that India will raised to 12.5%, from 7.7%, the import tariff on refined palm oil.
"At a time when Indian policy makers are trying to address a large current account deficit gap, any further increase in the edible oil import bill would be a concern."
Forecast downgrade
Chinese and Indian dynamics, "coupled with a potentially large edible oilseed harvest in 2013-14, suggest that the crude palm oil market will need to adjust lower", Mr Ofon said.
StanChart, which has been one of the more upbeat commentators on palm oil price prospects, cut its forecasts for palm oil prices in the rest of 2013, and in 2014.
No comments:
Post a Comment