Outlook for palm oil prices ‘friendly’, says Sipef

(Agrimoney) – Plantations group Sipef flagged a “friendly” outlook for palm oil prices, helped by a tighter outlook for Indonesian supplies, as it signalled that a policy of holding off sales of the vegetable oil had paid off.

The bananas-to-tea producer said that it was “reasonably confident” of prices extending their recent rally from multi-year lows hit in August, although raising doubts of prices returning to “levels experienced over the past few years”.

The forecast for a continuation in the headway which has seen Rotterdam values recover from $480 a tonne in late August to $570 a tonne this week reflected in part the double whammy to Indonesian output prospects from El Nino, which has a history of causing regional dryness, and smog.

The haze, caused by slash-and-burn land clearance, “could impact photosynthesis” of oil palm trees, so undermining yields, Sipef said, highlighting a “slight slump” since last month in palm oil production at its own Indonesian plantations.

‘Bullish story’

The comments follow a downgrade on Wednesday by 500,000 tonnes, to 33m tonnes, on Wednesday by the Indonesian Palm Oil Board in its forecast for Indonesian palm oil output next year, although that would still represent an improvement on the 31.5m tonnes expected for 2015.

And Sipef also flagged the potential for increased domestic demand, with Indonesia’s government “finally showing its intent” to act on plans for raising from 10% the level of biodiesel, made from vegetable oils such as palm oil, which must be blended into transport diesel.

“Both the production slowdown and Indonesian biodiesel consumption will be the major factors to watch,” the group said.

“This could become a bullish story and we will see how the abundant availability of liquid oils, like soybean, sunflower and rapeseed oil, dampens this potential price rally”, with vegetable oils to a large extent interchangeable.

“The current outlook for palm oil in itself is friendly.”

Pricing binge

The comments came as the group revealed that it had accelerated sales of palm oil for shorter-term delivery, selling into the rising market, and had now priced 94% of its expected output for this year, compared with 63% in late August – meaning 31% of the crop was hedged in two months.

That took hedging progress ahead of that a year ago, when Sipef had sold 89% of forecast annual production by now – only a further 10% of the crop from that priced two months before.

Nonetheless, the group hinted that it remained a slow seller further ahead into 2016, saying that values have “not yet reached a level that we would wish to proactively stimulate forward sales contracts”.

Palm oil vs soyoil

Separately, Rabobank hiked its forecasts for Kuala Lumpur palm oil futures by up to 150 ringgit a tonne, citing “ringgit weakness and dry weather”.

However, the forecasts – which saw prices on a quarter-average basis peaking at 2,400 ringgit a tonne in the April-to-June period – remained a little below the futures curve.

“Weak demand and the narrow price spread to Chicago soyoil are expected to keep the pressure on palm prices,” the bank said.

While Chinese data on Wednesday showed soaring palm oil imports last month, buy-ins were seen slowing thanks to a large build-up in port inventories of the vegetable oil, seen rising 10% to 750,000 tonnes last month.