Rabobank: Palm oil prices on MDEX to rise in Q1 2013

SINGAPORE: Palm oil prices on the Malaysian Derivatives Exchange (MDEX) is expected to rise in the first quarter of next year from its current depressed levels, says Rabobank Agri Commodity Market Research.

It said data released by the Malaysian Palm Oil Board (MPOB) on Monday showed that stocks reached a record 2.56 million tonnes in November after it started rising since June as production continued to outpace exports.

Production in November fell 3 per cent to 1.89 million tonnes but was 16 per cent above year-ago levels, while exports dropped 6 per cent to 1.66 million tonnes.

Since the beginning of November MDEX palm oil prices for January delivery fell more than 11 per cent to RM2,211 per tonne.

“We believe this already reflects current high stock levels and do not expect further downside as a result of the data, it said in a research note.

Rabobank said palm oil continued to appear cheap relative to other oils as its price discount was near record low levels.

The note said it was likely crude palm oil’s seasonally low production in Q1 2013 would allow prices to move closer to long-term averages.

It noted that strong Malaysian palm oil exports to China in November were not enough to offset weak demand from countries.

Malaysia’s palm oil exports to China reached a record high of 500,000 tonnes in November, surpassing the previous record high of 461,000 tonnes, achieved in July 2011.

However, Malaysia’s palm oil exports to India in November fell 41 per cent, from the previous month, to 184,000 tonnes while exports to the European Union fell 29 per cent to 197,000 tonnes.

Exports to the rest of the world were down 14 per cent to 778,000 tonnes in November.

Historically, Rabobank said palm oil production and yields tend to peak in Q4 before declining to a seasonal low in Q1.

“In recent years this seasonability has increased which we expect should cause output to decline in coming months.

“This is likely to occur at the same time as US soybean supplies are drawn down and before large volumes of South American soybeans become available for export – resulting in reduced total vegetable oil supplies globally,” it said.

Prices are likely to find support at current levels given the expectation that reduced production would draw down stocks in coming months.

Although the MPOB November data was slightly bearish, Rabobank said: “We believe current prices are reflective of this as values have declined 11 per cent since the beginning of November.

“However, with stock levels in excess of 2.5 million tonnes we expect prices to remain range-bound for the remainder of the year.”