Palm oil demand seen tepid in Dec, could pick up in New Year

14.12.2017

Demand for palm oil is likely to stay weak in December despite a recent slide in prices, said traders in No. 2 producer Malaysia, though exports from the country are seen rebounding in January as China stocks up ahead of the Lunar New Year.

Benchmark prices for the commodity, used to help make products ranging from instant noodles and chocolate to soap, have dropped about 12 percent since the start of November, standing around 2,430 ringgit ($596) on Thursday.

That fall has largely been driven by a decline in exports due to higher import duties in top edible oil consumer India, as well as by a stronger ringgit, which makes palm more expensive for foreign buyers.

"Everyone usually banks on India for demand, but the duty increase has made everything slow, so the prospect of ending the year with closing stocks at 2.7 million tonnes is high," said a Kuala Lumpur based trader. He declined to be identified as he was not authorised to speak with media.

End-stocks in Malaysia grew to 2.56 million tonnes in November, their highest since late 2015.

But demand is expected to pick up as China gears up for Lunar New Year in February, with palm oil used to prepare dishes consumed as families gather to celebrate the festival.

"Buying activity is now subdued, but Chinese New Year is in February, so China will start buying up next month. India has also been paring down their stocks, so they will resume buying next year," said Ivy Ng, regional head of plantations research at CIMB Investment Bank in Kuala Lumpur.

"Typically demand will also bring price support," added Ng, forecasting palm oil's price range at 2,400-2,600 ringgit in January.


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