Depleted importer stocks support palm oil prices, Sipef says

19.08.2016

Palm oil prices are set to rise, as importers make up for a long period of weak importer purchases reduced stocks, the palm oil producer Sipef said.

"The palm oil market is currently being driven by different factors, whereby the biggest trigger is how quickly the low production will recover from the El Nino impact," said Sipef.

"Timing could be of the essence in this respect, as demand is kicking in, whereas most destinations have been holding off the buying for several months and the destination stocks are dropping fast."

"As a result, we are seeing an inflated spot market that could drag prices up further."

Soyoil competition

But Sipef, which noted that "palm oil had lost its competitiveness versus liquid oils," noting the coming US soybean crop.

"August is the essential month for the US soybean crop where it is currently hot but the soil moisture seems to be sufficient."

"Therefore, we expect quite a degree of volatility with a mild rise from current price levels," Sipef said.

Falling production

Sipef reported that palm oil production was down in the April to June period, due to the delayed effect of last year's El Nino.

Palm oil production in the April to June period, including from third party suppliers, was down 2.2% year on year, at 72,972 tonnes.

"Palm oil production in the second quarter, even more so than at the beginning of the year, experienced the delayed effects of the El Nino drought of 2015," Sipef said.

"The mature plantations in North Sumatra in particular witnessed markedly less fruit bunch formation, causing production in the second quarter to be down (-18.7%) on the same quarter last year."

Fruit prospects improve

But palm production is now improving again, as the drought problems ease.

"A slight improvement in palm oil volumes could already be observed in North Sumatra in July, while the trend is clearly positive for the fruit bunch formation of the fourth quarter's harvest," Sipef said.

"We can safely say that in 2016, despite the significant delayed drought effects of El Niсo, volumes are again set to increase compared to last year."

Sipef was upbeat on its prospects for 2016, due to the recovering production and good price prospects.

""Given the improving production outlook for the second half of the year and the sales already achieved, we are in the meantime more positive about the 2016 recurring profit, which should surpass that of last year," Sipef said.

Shares rise

Sipef reported revenues of $117.4m over the first six months of 2016, compared to $117.9m over the same time last year.

Operating profits over the period were reported at $13.3m, compared to 14.5m a year ago.

Sipef shares in Brussels were up 1.4% in afternoon deals, at E51.25.


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