An Indonesian migrant worker pushes a cart while collecting bunches of palm oil fruits during harvest in a plantation.
Palm oil prices have risen nearly a fifth this month, but are still trading below an all-time high in March
Industry officials said palm oil prices are expected to firm up further as excessive rains in major producing countries reduce production, while increasing demand for its use in food and biofuels.
Palm oil prices have risen by about a fifth this month, but are still trading well below their highs in March. The expected increase in prices will burden consumers already affected by inflation due to the Russo-Ukraine war, but higher exports and lower output will help major palm oil producers Indonesia and Malaysia reduce inventories.
Traders said crude palm oil to India, the world's largest importer, is being offered at $976 a tonne in November including shipment cost, insurance and freight charges.
He said January delivery is being bid at $1,010 a tonne.
"But if Indonesia decides to reinstate the export levy, the prices could go above $1,100," said a Mumbai-based dealer of a global trading firm.
Indonesia's decision to suspend export duties in July pulled palm oil prices down from March's highs of $2,010 a tonne as stocks built up.
Traders said that despite this month's increase in prices, palm oil is trading at a discount of around $400 a tonne against rival soya oil, the highest in a decade. Crude soya oil for November delivery in India is being bid at $1,405 a tonne.
“The spread between palm oil and soya oil is massive and volatile,” said Pradeep Choudhary, managing director, Gemini Edibles & Fats India Pvt Ltd. Ltd., a leading Indian Importer.
The way demand is shifting from other edible oils to palm oil, it is very likely that palm oil (prices) will pick up."
Typically, palm oil production in Indonesia and Malaysia begins to decline from November, accounting for more than 80% of global production. But this year, the decline in production is expected to intensify as the La Nia weather pattern brings heavy rainfall to Southeast Asia for the third time in a row.
"We have been experiencing heavy rains for the past three days, with minor flooding here and there," said Fabian Lim, plantation manager in Sabah, Malaysia's largest palm oil-producing state. "It's affecting the clearance of my crop."
Floods and heavy rains make it difficult for workers to harvest palm oil and transport the fruits to factories for processing.
Shares fall in Indonesia
The Mumbai-based dealer said relaxation in soya oil and suspension of export levy has boosted exports of palm oil to Indonesia and stocks are falling faster than expected.
Indonesia's palm oil reserves fell to 4.04 million tonnes at the end of August, from 5.91 million tonnes a month earlier and 6.69 million tonnes at the end of June, according to estimates by the Indonesian Palm Oil Association (GAPKI).
GAPKI data shows that the demand for palm oil based biodiesel is also increasing. In January-August, Indonesia exported 206,000 tonnes of biodiesel, surpassing the 167,000 tonnes exported by the country in 2021.
Traders said the supply of sunflower oil, a substitute for palm oil from the Black Sea region, has fluctuated after the Russo-Ukraine war.
The Black Sea region accounts for 76 per cent of world sunflower oil exports and any disruption could result in increased demand for palm oil, said Sandeep Bajoria, chief executive officer of broker Sunwin Group.
Indonesia's decision to suspend export levies pushed palm oil prices down and intensified after sunflower oil shipments from the Black Sea region resumed in August under a UN-broker deal. Bajoria said the supply could again be disrupted if the war intensified.
Buyers also fear that Jakarta may not retain the export levy exemption after December, as stocks will become more manageable. "At a time when the world is struggling to secure sunflower oil, Indonesian tariffs will make palm oil more expensive," said a New Delhi-based dealer.
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