Palm Oil Finishes 2020 on Stronger Note: Malaysian palm oil posted decent gains after a bearish phase till May 2020. As such Indian CPO prices had also started recovering from June onwards. Domestic demand also started improving as inventories till May month had been running quite low hence Indian importers rushed to replenish their reserves.
CPO was supported as Malaysian markets maintained an upward journey from improving export demand across the world. The trade relation between India and Malaysia improved in 2020 and Indian importers resumed purchases of Malaysian palm oil from June onwards. Lower production in Malaysia was another bullish factor in 2020.
The ongoing pandemic had enhanced the risk of production loss of Malaysian palm oil. In Malaysia, workers in palm plantation are mostly migrant workers from Indonesia, Bangladesh, and India, rather than the locals. Earlier in March-April, as countries in Southeast Asia struggled to get the Covid-19 outbreak under control, the Malaysian government tightened restrictions on both sided travel for workers. As a result, the country continues facing an acute labor shortage. Manual labor is required to keep trees pruned and healthy for future seasons. Therefore lack of adequate manpower to manage all these operations shall be influential in enhancing the production loss threat in near future as well. There are estimates of 2020 production to fall by 20-25% versus 2019. CPO posted record highs in 2020 and ended the year on a strong note.
Upward Price Trend May Continue in Palm Oil: Malaysian palm oil prices are surging constantly because supply-related concerns have emerged at a time when the global export demand remains strong. India is the largest importer of palm oil and our country is regularly building up stockpiles from Malaysia, to meet the near term requirements. Since the hotels and restaurant sector account for 33% of the total palm oil consumption in India, purchases from this country are expected to remain healthy as this sector re-opens gradually. Production has suffered significantly in recent months because of the labor shortage problems which will be another factor in supporting the price rise. However, production prospects may recover by the second half as the border travel restrictions are being eased because of the reducing Covid pandemic threats and the likelihood of successful launch of vaccines in the next 4-5 months. The crude oil outlook is bullish for the first quarter of 2021 and will be a supportive price driver as of now. The recent import duty cut in India is unlikely to matter much due to higher import parity for the Malaysian palm oil. Crude Palm oil is expected to trade with a positive bias during the first half of the year and the second half may see a reversal in case production starts recovering in Malaysia and Indonesia.
