HomeFutures and CommoditiesPalm oil demand drops as buyers opt for cheaper alternatives, slowing down...

Palm oil demand drops as buyers opt for cheaper alternatives, slowing down price rebound.

Palm Oil Prices Affected by Abundant Supplies of Rival Oils

Abundant Supplies of Rival Oils Hampering Palm Oil Price Recovery

Palm oil prices are expected to face limitations in their rebound due to the availability of abundant supplies of rival soyoil and sunflower oil. These “soft” oils are being offered at discounts to tropical palm oil for the first time in over a year, posing a challenge to the price recovery of palm oil.

Price Trends of Palm Oil and Rival Oils

Malaysian palm oil futures have seen a nearly 5% increase in 2024 following an 11% decrease last year. However, the primary competitor soyoil is now trading at a discount to palm oil, contrary to its typical premium. The record South American soybean crop has driven down soyoil prices, resulting in increased shipments by buyers.

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Impact on Price Trends

The rise in soft oils production and the decline in palm oil production have led to divergent price trends. Vipin Gupta, CEO of Dubai-based trader Glentech Group, noted that higher prices are pushing buyers away from palm oil, limiting its price rise.

Effect on Imports

India, the top vegetable oil importer, has seen a reduction in palm oil imports and an increase in soyoil purchases. This shift has resulted in palm oil imports falling to their lowest in three months in January, while soyoil purchases rose by 24%.

Refining Margins and Imports

Negative refining margins for palm oil in India have prompted increased purchases of soyoil and sunflower oil, according to industry experts. The trend is also reflected in the European market, where palm oil is trading at a premium over rival oils due to higher freight costs.

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Core Demand and Future Outlook

Despite high prices, industrial demand for palm oil is expected to remain intact, while Pakistan’s demand for palm oil in vanaspati ghee production is likely to persist. The future outlook suggests that palm oil is expected to maintain its premium for the coming months, driven by declining production in Indonesia and Malaysia.

Malaysia’s palm oil stocks are also anticipated to decrease, giving producing countries leverage to quote higher prices.

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