The rise in stocks, albeit lower than expected, has been anticipated by the market and comes on the back of higher production and a dip in exports, while a surge in local consumption also ate into stocks at the end of September.

Malaysia’s crude palm oil (CPO) production in September rose by 4.3% to 1.83 million tonnes – again lower than earlier expectations of around 6% more than in August in polls by newswires Reuters and Bloomberg, with the Malaysian Palm Oil Association pegging it at 1.87 million tonnes while brokerage UOB Kay Hian estimated output at 5-9% higher.

The increase in output comes amid Malaysia’s seasonal peak production season, with the state of Sabah registering the highest monthly production growth at 8.3% higher to 418,052 tonnes.

Meanwhile, palm oil exports slipped by 2.1% to 1.196 million tonnes, contrary to market estimates of an increase of around 8%, while cargo surveyor figures had pegged exports at 3.6-8.1% more than August.

The bigger surprise has come from the sharp jump in local disappearance, which is estimated at around 479,786 tonnes or an 80% increase from August.

While MPOB does not release local consumption data, one possible reason offered for the rise in domestic consumption could be due to higher cooking oil purchases, following talks that the Malaysian government will discontinue the subsidy for the 1 kg polybag cooking oil in the upcoming budget due to be tabled October 13.

The subsidy, which prices the 1 kg polybag at RM2.50 versus actual prices which could be around 3-4 times higher, is planned to be replaced by a targeted subsidy based on income group and potentially sparked some panic buying from consumers in September.

Imports

Lastly, imports for September were reported at 49,054 tonnes, 55.7% lower compared with August.

Looking ahead, the lower-than-expected end-month stock build may provide some support to bullish sentiment in the market, alongside export indications for October 1-10, which cargo surveyors Intertek Testing Services (ITS) and Amspec Agri Malaysia have been pegged to increase by 12.5% and 29.6% from September to 394,570 tonnes and 395,890 tonnes respectively.

The most active CPO futures contract for December delivery on Bursa Malaysia was trading lower during the morning trade session, closing at MYR3,567 per tonne ($754 per tonne) at midday ahead of the release of MPOB data, dragged down by the drop in weaker overnight soybean oil futures on CME.

View our veg oil prices

Note: Prior to the release of the September data, MPOB had adjusted August exports of processed palm oil to 951,803 tonnes from 951,768 tonnes, CPO stocks to 1,200,077 tonnes from 1,200,612 tonnes, and processed palm oil stocks to 910,903 tonnes from 924,351 tonnes, resulting in estimated local disappearance for August at 265,164 tonnes instead of 251,473 tonnes reported earlier.   

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The increment was smaller than the change seen from May to June and came as a stronger export performance eroded the healthy increase in production.

The change in end-month stocks also came in much lower than earlier industry expectations of around 4%, as polled by newswires Reuters and Bloomberg.

Exports

Malaysian palm oil exports in July rose by 15.6% from June to 1.35 million tonnes – the second highest level seen this year – aided by strong buying from markets such as India and as palm oil has kept its competitiveness against rival soft oils after trading at a premium to its competitors earlier this year.

That has made it a preferred option for buyers.

The level also surpassed export estimates from cargo surveyors which had put July shipments at 1.17-1.24 million tonnes, while industry estimates from newswire polls had pegged exports at around 1.27-1.28 million tonnes.

Crude palm oil (CPO) production in Malaysia in July also rose by 11.2% from June to 1.61 million tonnes, also exceeding estimates of 1.56-1.58 million tonnes and figures from the Malaysian Palm Oil Association, which had production at 10.73% higher to around 1.6 million tonnes.

Lower imports also added to the lower end-month stock figure, with imports falling by 23.2% to 103,837 tonnes, while local disappearance was estimated at 8.23% lower to 348,826 tonnes.

For August, Malaysia’s production is likely to be steady to firmer as the country enters its peak production season, though concerns over tree health and labour productivity linger, while the change in exports may be more moderate with buyers holding higher stocks following strong buying in the last two months.

The benchmark CPO futures contract for October delivery on the Bursa Malaysia Derivatives Exchange fell 51 points to close at MYR3,720 per tonne ($813 per tonne) at the end of the early trading session, with market participants taking positions ahead of MPOB’s data release on earlier expectations of higher stocks and as CPO tracked weakness from rival soy oil futures on CME from overnight.

Note: MPOB has revised its June export figures to 1,171,739 tonnes from 1,171,741 tonnes, production to 1,447697 tonnes from 1,447,795 tonnes and end-June stocks to 1,719,835 tonnes…

Learn more about Fastmarkets palm oil price trends and forecasts

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The rise comes following a jump in imports of crude degummed soybean oil (CDSBO) and crude sunflower oil (CSFO), which rose by 21.5% and 18.5% on the month to 318,887 tonnes and 295,206 tonnes, respectively, reaching a total of 614,093 tonnes – 20% higher than April.

Argentina and Brazil were India’s top two suppliers for CDSBO in May at 197,444 and 104,940 tonnes respectively.

For CSFO, Argentina topped the supplier list again with 86,990 tonnes, while Russia placed second at 71,025 tonnes.

On the other hand, imports of palm oil – consisting of crude palm oil (CPO), refined bleached deodorised (RBD) palm olein and crude palm kernel oil (CPKO) – fell to its lowest level seen in 27 months to 439,173 tonnes –13.9% lower from April.

Palm oil imports continue to slide

The dip continues from April where the spread between palm oil and soft oils narrowed considerably, prompting buyers to switch their purchases to soybean and sunflower oil.

Buyers were also heard cancelling more expensive palm oil cargoes purchased earlier and replacing them with soft oils.

Average CIF India prices for CPO were recorded at $938 per tonne for May, versus $957 per tonne for CSFO and $999 per tonne for CDSBO, according to SEA data.

The price spread ranged around $80-320 per tonne a year ago, with CPO priced lower.

Palm oil imports are expected to improve in June and July, with buying interest from India seen picking up as the spread between palm oil and its rivals widens further compared to earlier.

On a 2022-23 oil marketing year basis (November-October) however, palm oil imports remain dominant with total imports for the marketing year so far coming to 5.35 million tonnes – 59% of total edible oil imports and 43% higher from a year ago – while soft oil imports fell 2.7% on the year to 3.71 million tonnes.

Total edible oil imports for the first seven months of 2022-23 came to 9.06 million tonnes, 18% higher than a year ago.

For May, non-edible veg oil imports were at 4,998 mt, 82.5% lower from April and bringing the total veg oil imports for May to 1.06 million tonnes, 0.8% higher on the month but 0.3% lower than a year ago.

Total veg oil imports for 2022-23 so far came to 9.17 million tonnes, 18% higher than the same period last year.

Lastly, stock levels in India were pegged at 2.94 million tonnes as of June 1, 9.4% lower on the month.

Governmental policy

On Tuesday, the Indian government announced a reduction in the base import duty of refined sunflower oil and soybean oil to the same level as refined palm oil at 12.5% from 17.5% previously with effect from June 15.

The move is seen as a way by the government to address inflation and keep edible oil prices in check, though market participants are skeptical if it would make any significant change in the composition of imports, given that India currently imports crude soft oils and zero refined soft oils with crude soft oil imports seen as more commercially viable.

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Freight for 18,000-20,000 tonnes vessels from Southeast Asia to West Coast India was holding steady at $40-42 per tonne, unchanged from a week ago, while freight rates to East Coast India for 10,000-12,000 tonnes shipments were around $34-36 per tonne.

“There have been a number of inquiries for vessels to India for the second half of June, but availability of full ships is tight now as there was a glut of end-May cargoes and prompt space was taken up,” a regional shipbroker told Fastmarkets Agriculture.

“Those vessels are still on the way to India and are unable to make it back for the second half of June,” the shipbroker added.

Buying interest from India for June and July-September volumes has picked up more in the last few weeks, with palm’s discount against other rival soft oils widening compared to the spread seen in March-April.

Chinese freight rates

Meanwhile, freight to China rose on the back of increased inquiries for June shipments, with rates for 12,000-15,000 tonnes shipments from Southeast Asia to China at $35-45 per tonne, higher from $32-42 per tonne a week ago.

Similar to India, buying interest for June cargoes from the second largest palm oil importer has also picked up in recent weeks, with approximately 14-15 cargoes heard traded in the last two weeks for June shipment.

“We’re still looking for vessels at the moment for June; the challenge is because there are also fewer vessels available which meet China’s strict requirements for shipping olein,” one trader with dealings to China said.

For vessels carrying edible oil into China, the ship’s last three cargoes are also required to be of edible grade to reduce any risk of contamination.

This is on top of additional specifications and standards imposed by the Inspection and Quarantine authority (CIQ) for edible oil imports into the country.

Buying has also been more active for June shipments following earlier expectations that Indonesia will lower its reference price and effectively its export taxes for CPO for the June 1-15 period from the previous $169 per tonne to $118 per tonne, with taxes for other palm oil products also lowered, thereby making Indonesian products cheaper.

The official circular denoting the change was issued on May 30.

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Soybean volumes from Brazil reached 54.39 million tonnes in 2022, down 6.45% against the previous year.

Imports from other key suppliers, US and Argentina, also slipped as weakened demand amid a year of Covid-related disruptions and higher domestic production weighed on imports.

For 2022, China purchased 29.5 million tonnes of soybeans from the US, an 8.48% drop from the previous year, while imports from Argentina fell by 2.08% to 3.65 million tonnes.

Poor crush margins for most of the year had also kept demand from Chinese crushers constrained, with demand for feed from hog farmers also reduced amid poor farming margins.

View our data analysis of soybean crush margins

China’s soybean imports in December from its key suppliers, however, rose across the board, with imports from the US notably rising by 78.03% on the month to 6.02 million tonnes, 0.77% lower than last year.

December volumes from Brazil came in at 2.56 million tonnes, 1.1% higher on the month and 21.2% more compared to a year ago.

Meanwhile, soybean imports from Argentina rose 26.5% against November to 1.46 million tonnes.

This was 331.6% higher than the previous year, with China having stepped up its buying from Argentina in the last few months of 2022 on the back of Argentina’s ‘soy dollar’ instrument policy which made prices of Argentine soybeans more attractive against its competitors.

December’s soybean imports were also higher by 43.7% against November at 10.56 million tonnes, as slower cargo loading and longer clearance times at customs slowed arrivals in November and rolled into December.

For the 2022-23 marketing year, China’s agricultural outlook committee had kept its estimates for soybean imports unchanged at 95.2 million tonnes while raising production to 20.29 million tonnes from the previous 19.48 million tonnes in its latest China Agriculture Supply and Demand Estimates (Casde) update.

View our soybean price data

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The firm increase came on the back of a strong performance seen in soy meal exports, which reached 164,075 tonnes in November, 282% more than a year ago and more than 300% against October’s volume of 40,196 tonnes.

Soy meal exports were seen as more attractive against domestic sales, as local soy meal prices fell to INR42,000 per tonne ($508 per tonne) following the drop in soybean prices.

Indian soy meal also became more competitive against international products such as Brazilian meal, with Brazil soy meal being quoted at $588 per tonne ex-Rotterdam versus Indian soy meal at $535 per tonne ex-Kandla as of December 15.

The lower-than-expected Argentine soybean crop and crushing pace are also expected to see more supply competition from other soy meal exporters, such as the US, Brazil and India, at better prices, SEA noted.

Indian oil meal export drivers

The association added that the deprecation of the Indian Rupee (which is what is making Indian exports cheaper), the proximity to destination markets, the ability to sell in smaller amounts to major consumers in Southeast Asia and a preference for non-genetically modified (GMO) soy meal from certain buyers in the US and Europe helped to uplift soy meal demand in November.

India’s rape meal exports in November also rose by more than 200% on the year and 36.9% higher than October to 134,952 tonnes, with total rape meal exports in the first eight months of FY22/23 coming to 1.48 million tonnes – a record high.

The level exceeded the previous high of 1.25 million tonnes seen in the 2011-12 marketing year.

“Currently, India is the most competitive supplier of rapeseed meal to South Korea, Vietnam, Thailand and other Far East countries at $255 per tonnes FOB India, against Hamburg ex-mill at $368 per tonne,” SEA said.

For the first eight months of the 2022-23 season, India has exported 2.39 million tonnes of oil meal, 50% more than the previous year.

South Korea, Vietnam and Thailand remain major buyers of Indian oil meal, with South Korea importing 603,686 tonnes of meal between April-November 2022, 47.8% more than a year ago – consisting of 420,776 tonnes of rape meal, 161,073 tonnes of castor seed meal and 21,837 tonnes of soy meal.

Vietnam imported 567,362 tonnes of oil meal for the same period – 49.7% more than last year – while Thailand’s oil meal imports from India were at 433,961 tonnes – a 208% jump from the previous year.

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On corn, local sales are expected to remain firm in the wake of improved logistics and transportation as China looks to further optimize its Covid control measures.

In addition, supply levels in the short term will be elevated as farmers look to boost grain sales ahead of the Lunar New Year holiday period, which takes place at the end of January 2023, which could lead to some easing of prices.

However, with the continued demand from the animal feed sector, improved consumption from industrial sectors and more buyers willing to replenish stocks, prices are expected to remain supported and stabilize at a high level, the report noted.

Soybeans outlook

For soybeans, while the estimates for the 2022-23 marketing year were unchanged, soybean analyst Wang Yu noted that domestic soybean production in the new season had risen significantly, raising supply and leading to a general decline in local prices, mainly in the key production regions in Northeast China.

“The average wholesale price range of domestic soybeans is expected to be CNY 5,8000-6,000 per tonne ($831-860 per tonne), 8.8% lower against the average price from last year,” Wang said.

This contrasted against higher import costs, as a combination of political tensions in Brazil, drought affecting soybean planting in Argentina and stronger international vegetable oil prices have supported an upward shift in international soybean prices.

The average price range of imported soybeans after CIF tax is estimated to rise by 3.2% against the previous year to around CNY 5,000-5,200 per tonne ($716-745 per tonne).

Lastly, rapeseed production in China is progressing well, with the report highlighting the potential impact of lower rainfall and low temperatures which could affect crops in the south of the Yangtze River in later months.

A recap of the estimates for the 2022-23 marketing year, from October 1 to September 30 is as follows:

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October corn imports came in at 550,000 tonnes, lower by 64.1% from the previous month’s 1.53 million tonnes.

Total corn imports for the first ten months of 2022 reached 19.01 million tonnes.

Wheat imports

China imported 1.24 million tonnes of wheat in October, increasing more than 200% from September’s 370,000 tonnes and much higher than October 2021 when the country imported 480,000 tonnes.

However, China’s cumulative wheat imports for the period January-October 2022 were still lower than the same period last year, coming in at 787,000 tonnes versus 808,000 tonnes in 2021.

Barley and sorghum imports

Chinese barley imports in October also fell slightly against the previous month by 5.6% and 74.3% compared to a year ago.

On a January-October basis, China’s barley imports came to 4.75 million tonnes, dropping 52.2% from last year.

Sorghum imports in October were also lower, falling 33.7% to 610,000 tonnes compared to September and 26.4% against a year ago.

Chinese sorghum imports this year have so far come to 9.54 million tonnes, 16.6% more than the same period in 2021.

Veg oils imports

Lastly, Chinese edible vegetable oil imports in October rose against last year by 21.4% but fell by 5.1% from September to 740,000 tonnes.

Of the imported volume, palm oil imports made up 480,000 tonnes, while rapeseed and mustard oil imports came to 80,000 tonnes, 21.3% lower and 60% higher, respectively, compared to the month before.

When compared to a year ago, October’s palm oil imports rose by 33.3%, while rapeseed and mustard oil imports were unchanged.

For October, China imported zero soybean oil volumes, unchanged from September and against 70,000 tonnes imported a year ago.

For the year so far, China’s edible vegetable oil imports stand at 4.43 million tonnes, 50.2% lower than a year ago.

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Meanwhile, soybean oil imports are expected to fall by 11% to 3.6 million tonnes. With a market share eroded by an increase of sunflower oil imports, estimated to rise by 19% to 2.25 million tonnes in 2022-23, Mr. Sudhankar Desai, Chairman of IVPA, said during a presentation at the 25th Globoil Conference happening this week in Agra, India.

The expected increase in palm oil imports comes as palm oil prices have undergone a correction from the record highs seen earlier this year while enjoying a healthy discount against soybean oil which has capped buying recently.

Crude palm oil (CPO) prices are expected to trade at around $900-1,000 per tonne CNF India in the last quarter of 2022 and $1,000-1,150 per tonne CNF in Q1 of 2023, Mr. Desai noted.

This contrasts against soy oil at $1,200-1,350 per tonne CNF for the same period. At the same time, the increased availability of sunflower oil from the Black Sea region will also keep sunflower oil prices competitively priced against soybean oil, with Mr. Desai anticipating sun oil prices to range between $1,300-1,450 CNF India until March 2023.

Domestic consumption

India’s domestic consumption for 2022-23 is also expected to rise to 22.85 million tonnes, a 2.5% increment from last season after declining by around 7-8% in the last three years.

Total domestic supply in 2022-23 is expected to touch 11.83 million tonnes, on the assumption that India continues to enjoy a large domestic soybean and mustard crop, similar to 2021-22 levels.

A record mustard harvest and crushing in 2021-22 helped alleviate domestic pressures on cooking oil in India. This came at a time when vegetable oils were facing tight international supply, and prices were rising due to the Indonesian palm oil export ban earlier this year and the ongoing Russia-Ukraine war.

Mr. Desai also stressed a need for a better risk management tool for Indian buyers through the resumption of futures trading of crude soybean oil (CSBO) and crude palm oil (CPO) on India’s domestic exchanges, in view of the severe price volatility and large crop volumes seen this year.

The Securities and Exchange Board of India (SEBI) suspended futures and options trading in seven agri derivatives contracts – including CSBO and CPO – in December 2021 for a year.

In recent weeks, industry groups such as IVPA and the Solvent Extractors Association of India (SEA) have sought to have the suspension lifted to support risk management and price discovery.

For more information on the current veg oils market, take a look at our dedicated page for vegetable oil prices.

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UCO collectors, exporters and shipbrokers say that in the past few weeks they have been trying to make sense of the Indonesian government’s revisions to regulations, which required official clarification last week amid widespread confusion.

Until further clarity emerges on the exact requirements for waste-based feedstocks, however, considerably less material will make it out of the country’s ports than last year’s levels.

“Short-term disruption to all palm product exports will continue until there is some sort of clarity on Indonesia export policy,” said one analyst based in the region who requested anonymity, citing the sensitivity of the matter.

“The government does not seem to have a handle on this,” he said, adding that there have been “too many flip flops and new policies.”

The disruption in exports from Indonesia has come at a difficult time for European producers of FAME biodiesel, who have been experiencing major problems in getting regular and reliable supplies from China, which is beleaguered by the government’s prolonged, wide-ranging and severe lockdowns to combat the spread of Covid-19.

A shipbroker involved in arranging the transport of biofuels and their feedstocks from Asia told Fastmarkets EnergyCensus that exports had been majorly curtailed in recent weeks but that he expected the bottlenecks on exports to be unclogged within a few months.

“The value of the UCO trade to Indonesia is sufficiently large to warrant some type of clarity and relaxation of the rules, so we’d expect that to come fairly soon,” the shipbroker added.

At the end of May, the Indonesian government had begun granting export permits to palm oil exporters, a development that is also expected to free up exports of UCO and waste-based products that are derivatives of palm oil.

Director-General of Domestic Trade, Oke Nurwan, told news agency Bloomberg, that companies will be allowed to export three times as much as their domestic contribution of bulk cooking oil, and that the government may increase the volume of exports when domestic supply is seen as sufficient.

More export permit approvals are expected to be given in due course, according to the report cited by Fastmarkets Agriculture.

The volume of crude palm oil exports allowed is subject to how quickly individual companies fulfill their domestic market obligation (DMO).

The DMO requires exporters to supply a portion of their palm oil for the Indonesian government’s bulk cooking oil program.

As of Monday, May 30, the DMO was understood to be 20%, market sources told Fastmarkets Agricensus, though no official documentation had been published at time of publication.

Confusion has reigned over the past few weeks as to the extent that exports of UCO are covered by the same rules as crude palm oil, with the current perception among the trade that waste-based feedstocks will eventually be subject to considerable dispensation.

Indonesia’s new palm oil export arrangements: A guessing game

Last week, Fastmarkets Agricensus reported that freight sources had highlighted a lack of detail in Indonesia’s repeatedly-revised export arrangements, meaning that traders have been slow to book new fixtures while uncertainty remained around how the scheme is expected to work.

“Indonesia and India’s policy/export plan announcements seem to change by the day,” senior grain and oilseed commodity analyst at Futures International Terry Reilly told Fastmarkets Agricensus.

“Given the turbulent decisions by the Indonesian government over the last couple of months, market participants are tired of guessing and will most likely wait for the June export duty/levy announcement,” Fastmarkets Agricensus quoted Anilkumar Bagani, research head at Sunvin Group India, as saying.

UCO price surge

Indonesia’s export capacity is thought to be around 25,000-30,000 tonnes per month, making the country a major exporter to Europe where domestic availability of UCO is coming under increasing pressure because of massive inflation in veg oil prices.

Soaring costs for sunflower oil, rapeseed oil, crude palm oil, and soyoil are prompting the food processing and catering sectors to use less oil to begin with or to re-use oil more often before it is released as UCO, a major European supplier of waste oils told Fastmarkets.

UCO feedstock costs around $1,810 CIF ARA, around 30% higher than on February 24, the day that global vegoil, energy, and biofuels markets became increasingly mercurial in view of Russia’s full invasion of Ukraine.

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