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India's palm oil imports are projected to hit a five-year low in Jan-25, declining around 340,000 to 370,000 metric tons (mt) from 782,900 mt in Jan-24, due to negative refining margins and a price premium over soybean oil. This reduction by the world’s largest edible oil buyer may pressure Malaysian palm oil prices while supporting United States (US) soybean oil futures. Processors face losses exceeding USD 30/mt, with Feb-25 and Mar-25 prices expected to decline further. In Dec-24, India’s edible oil imports fell by 25% to 1.19 million metric tons (mmt), including a 40% drop in palm oil imports to a nine-month low of 503,000 mt.
Indonesia has introduced a regulation to restrict exports of used cooking oil (UCO) and palm oil residue, aiming to secure domestic supply for its expanded B40 biodiesel mandate, which raises the palm oil blend in diesel to 40%. The new rule requires exporters to obtain government export allocations and addresses concerns over UCO being mislabelled and exported as biodiesel feedstock. Furthermore, amid reported product shortages, Indonesia mandates domestic crude palm oil (CPO) sales at capped prices for its subsidized Minyakita cooking oil program. UCO and residue exports from Jan-24 to Nov-24 fell 13.75% year-on-year (YoY) to 3.95 mmt.
Indonesia has delayed the nationwide implementation of its B40 biodiesel blending policy, originally set for January 1, granting businesses a six-week adjustment period to deplete B35 fuel stocks. Aiming to boost demand for domestic palm oil and reduce reliance on fuel imports, the program will increase the blending mandate to B50 by 2026, with plans to phase out diesel imports. Meanwhile, the Indonesian Palm Oil Producers Association (GAPKI) has raised concerns over a new 10% export duty on CPO, up from 7.5%, which could hurt export competitiveness in the face of stagnant production. The United States Department of Agriculture (USDA) estimates the B40 mandate will drive Indonesia’s industrial palm oil consumption to a record 14.5 mmt in 2024/25, further tightening export availability.
Malaysia has maintained its CPO export tax at 10% for Feb-25 while reducing the reference price to USD 1,071.79/mt (MYR 4,817.70/mt), down from Jan-25's USD 1,117.45/mt (MYR 5,001.72/mt). Ranging from 3% to 10% based on price tiers, the export tax remains at its maximum rate as prices exceed the USD 904.83 (MYR 4,050) threshold.
Malaysian palm oil stocks are projected to reach 1.6 mmt in 2025, slightly lower than 2024’s 1.71 mmt. Palm oil production is forecasted to increase marginally to 19.5 mmt, up from 19.34 mmt in 2024, while exports are forecasted at 17.3 mmt, up from 16.9 mmt. CPO futures are expected to trade between USD 892.70 and 959.66/mt (MYR 4,000 and 4,300/mt), compared to last year’s average of USD 921.03 (MYR 4,128). The Malaysian Palm Oil Board (MPOB) emphasized a sustainable approach to meet global demand while balancing environmental, economic, and social considerations.
Indonesia's palm oil prices have risen sharply, reaching USD 1.19 per kilogram (kg) in W3, marking a 16.67% week-on-week (WoW) increase and a significant 46.91% YoY rise from USD 0.81/kg. However, analysts predict that rising production and delays in the implementation of the B40 biodiesel mandate could exert downward pressure on palm oil prices beyond Q1-2025.
The gradual recovery in palm oil production is forecasted to push output towards 20 mmt by the end of 2025, aided by improved weather conditions and labor availability. However, the potential delays in the B40 biodiesel program, which mandates a higher palm oil blend in diesel, could slow demand growth, particularly if the widening price gap between palm oil and diesel continues.
In addition, the drop in Dec-24 exports and reduced inventory levels in Malaysia point to ongoing challenges for palm oil prices, with lower exports expected in Jan-25. As a result, CPO prices could range between USD 781.52 to 1,004.81/mt (MYR 3,500 to 4,500/mt) for the rest of the year, as indicated by market forecasts, with potential for further declines if global supply conditions remain favorable for competing oils like soybean and rapeseed.
Malaysia's palm oil prices experienced stability, holding at USD 1.04/kg in W3, representing a 26.83% YoY increase from USD 0.82/kg. Despite this price stability, recent data from the MPOB suggests underlying supply constraints that could influence future price trends. In Dec-24, Malaysia's palm oil exports declined by 9.97%, driven by an 8.30% drop in CPO production and a 6.84% reduction in palm kernel output. This contraction in production, combined with a 6.91% decrease in total palm oil stocks, suggests tightening supply conditions.
Furthermore, while exports of palm kernel oil and palm kernel cake have decreased, biodiesel exports rose by 29.69%, highlighting a shift in demand towards more sustainable fuel products. This could contribute to upward pressure on CPO prices, as demand for biodiesel increases domestic palm oil consumption.
There is a 139.50% surge in palm kernel oil imports, which also signals potential adjustments in production strategies as Malaysia seeks to meet domestic and international demand. The drop in palm oil exports, coupled with a modest increase in biodiesel exports, may lead to further price fluctuations, potentially maintaining the current price range or even driving prices higher if production constraints persist.
Thailand's palm oil prices decreased slightly to USD 1.10/kg in W3, reflecting a 0.90% WoW drop, although still showing a 27.91% increase compared to the previous year. Despite this recent dip, Thai farmers saw a significant boost in income in Nov-24, driven by higher prices for key commodities like rubber, pineapple, and sugarcane, with palm oil contributing to the growth, especially in the southern region.
The positive performance in the agricultural sector, attributed to strong global demand, favorable weather conditions, and successful government initiatives, has benefitted Thai palm oil producers. The yearly rise in palm oil prices, alongside higher earnings from rubber, helped farmers in the southern region experience a remarkable 218.5% income growth.
However, the decrease in palm oil prices in recent weeks, and price pressures from other edible oils could pose challenges to future price stability. The sector's outlook remains heavily dependent on local production trends and the international market dynamics influencing edible oil prices.
Given India’s expected reduction in palm oil imports, processors and importers should explore alternative sources, such as increasing purchases from Indonesia and Malaysia to maintain supply stability. Strategic hedging against potential price drops, especially with the forecasted decline in Malaysian palm oil prices, can protect against financial losses due to fluctuating prices.
Importers should stay informed about Indonesia's export regulations, such as the recent restriction on UCO and palm oil residue, which may tighten global supply. Ensuring flexibility in sourcing and adjusting to regulatory changes will help mitigate risks associated with disrupted supply chains while tapping into growing domestic consumption driven by biodiesel mandates.
Sources: Tridge, Ukragroconsult, Hellenic Shipping News, Nation Thailand
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