Palm oil prices to increase in 2017

01.12.2016

Increased exports to India, low Chinese stocks, and the lingering effect of the 2015-16 El Nino will support palm oil prices into next year, VSA Capital said.

 "Plantations bounce-back from El Nino will be more slowly than many traders expect," the London- based broker said.

 "Continued growth of circa 3% in the global oilseed consumption will also support pricing," VSA said.

VSA forecast prices into a benchmark average Malaysian price of MYR 3,100 per tonne ($700 per tonne).

For comparison, March 2017 crude palm oil futures are currently around 3,070 ringgit a tonne, with September 2017 futures at around 2960 ringitt.

China stocks low

Exports to India, currently on a low due to problems surrounding the availability of large denominated currency notes, will recover by next year, VSA said.

Stocks, in China, meanwhile, are low.

"We wait to see whether this is indeed a low or a new normal," the broker said.

The Chinese government appears to be propagating soybean oil usage, by increasing imports and encouraging domestic production.

But VSA warned that with the election of Donald Trump, which some fear could sour trade relations between China and the United States, and given China's "own moves to take initiative away from the US with regards to South East Asia trade," the country may again turn to palm oil.

Softening to come

While prices are expected higher in the first half of 2017, towards the latter part of the year and into 2018, it is possible some softening of palm oil prices will be seen, said VSA.

This will occur after the US soybean crop is harvested and the impact of El Nino on palm oil estates finally fades, "which may result in a prolonged period of flush production," it said.

West Africa – the way forward?

With arable land in Indonesia and Malaysia decreasing and a more stable palm oil price, producers may look towards West Africa, VSA said.

"Through the signing of the Marrakesh Declaration for Sustainable Development of the Oil Palm Sector in Africa, we may see interest levels increasing over the next twelve months," it said.

A number of producers, such as Sime Darby and Golden Veroleum Liberia have already gone into West Africa, VSA said, with more companies expected.

"We believe that with good quality land becoming more expensive in their home markets, perhaps we may see the second tier palm oil producers taking more prominence in any second wave of West African palm oil expansion," the broker said.

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