Chart of palm oil discount to soybean oil (SOURCE: Bloomberg)
KUCHING: Despite ongoing economic crises in Europe and the US as well as related concerns over potentially diminishing demand for palm oil, the global take-up rate has been highly encouraging as the world’s top consumers have been purchasing massive amounts of edible oil.
Remaining bullish on the plantation sector, Alvin Tai, an analyst from OSK Research Sdn Bhd (OSK Research) yesterday stated, “Despite the prevailing concerns over a demand slowdown, we have yet to detect any signs of this happening.
“India’s year-to-date edible oil purchases continue to hit record highs while China’s purchases have held steady.
“In the first 25 days of September, Malaysia’s palm oil shipments jumped 11.3 per cent month-on-month, led by a 94.7 per cent surge in exports to India and 47 per cent increase to China,” the research analyst pointed out.
Tai also believed the substitution of soybean due to supply shortfall would accelerate as the US harvesting season progressed, especially given a substantial discount of about US$350 per metric tonne at which palm oil was trading.
“As the poor US soybean crop fuels the need for alternative sources of edible oil, the search for substitutes will intensify as the September to November harvesting season in the US progresses.
“We estimate that the lower US yield will give rise to demand for 1.8 million tonnes of substitutes, which will be mainly palm oil,” Tai opined.
In the long term, he believed palm oil price would strengthen as the commodity’s production in Indonesia would decelerate starting next year and reach a plateau in 2016 as its trees aged.
“As Indonesia’s production was instrumental in driving palm oil supply growth in the past five years, slower production growth will lead to weaker global palm oil supply growth and consequently, higher palm oil prices,” he concluded.