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Futures Daily reported on November 1st: Recently, Indonesia's palm oil inventory has continued to decline, and its government has reiterated its biodiesel B40 plan. Malaysia's palm oil production has been reduced in advance, and inventory may begin to decline at the end of the month. In addition, Indonesia and Malaysia raised export tariffs in November, causing palm oil prices to break through the upward trend.
Indonesia's production has decreased
Indonesia, the world's largest palm oil producer, has experienced a decline in production this year. From August to October 2023, the southern regions of Sumatra and Kalimantan in Indonesia experienced severe drought, which severely affected the growth and fruit development of oil palm trees, resulting in a significant decrease in palm oil production from May to July this year. According to relevant data, Indonesia's palm oil production from January to August 2024 was 34.05 million tons, a year-on-year decrease of 2.25 million tons. The Secretary General of the Indonesian Palm Oil Association stated that palm oil production is expected to decrease by 5% in 2024 compared to 2023, with an estimated production of 51 million tons. According to GAPKI data, Indonesia's palm oil production recovered in August, reaching 4.38 million tons, still lower than the average of the same period in the past four years (4.49 million tons). In addition, exports improved month on month and domestic consumption remained strong. At the end of August, Indonesia's palm oil inventory further decreased to 2.45 million tons, a decrease of 60000 tons month on month, reaching a new low in nearly five years.
Recently, the Indonesian Ministry of Agriculture reiterated that the blending rate of biodiesel will be raised from B35 to B40 starting from January 2025, with an expected increase of 2 million tons of palm oil consumption per year. As seasonal production cuts and the B40 policy implementation date approach, the supply and demand of palm oil in Indonesia will further tighten. In addition, the Indonesian President has put the B50 policy on the agenda to reduce imports of fossil fuels and increase energy independence. The reduction in Indonesian palm oil exports will exacerbate concerns about the supply-demand imbalance in the international palm oil market.
Malaysia's supply is tightening
There are signs of early reduction in palm oil production in Malaysia. In previous years, Malaysia's palm oil production reached its peak in September and October, and entered a seasonal reduction period in November. Due to heavy rainfall in September and October this year, palm oil production began to decline ahead of schedule. MPOB data shows that Malaysia's palm oil production in September was 1.82 million tons, a decrease of 3.7% compared to the previous month. According to SPPOMA's statistics, Malaysia's palm oil production decreased by 7.4% month on month from October 1st to 25th. November will enter the traditional production reduction season.
Due to the resumption of procurement demand by India, the top palm oil importer, Malaysia's palm oil exports have continued to perform strongly. In mid September, India raised import tariffs, leading to a large number of ship washings. The total import volume of vegetable oil in India in September was 1.09 million tons, a decrease of 30% compared to the previous month, resulting in its inventory dropping to 2.45 million tons. Shipping data shows that Malaysia's palm oil exports increased significantly month on month from October 1st to 25th, mainly due to India's increased imports. It is expected that the palm oil inventory in Malaysia will drop to less than 2 million tons by the end of October, and the supply from production areas will tighten.
Malaysia will increase the export tax rate for crude palm oil to 9.5% starting from November, compared to the previous tax rate of 8%. Indonesia will raise the reference price for crude palm oil in November to 961.97 US dollars per ton, increase the export tax by 50 US dollars per ton, and impose a special tax of 7.5% on the reference price. The increase in export costs of crude palm oil from the production area will largely be passed on to the importing countries.
Domestic inventory remains low
The quotations from palm oil production areas have remained firm, with recent and far month quotations above $1000/ton. The import profit of domestic shipping schedules in recent months has been inverted by around $300/ton, which has limited the enthusiasm for buying ships in China. As a result, the amount of palm oil arriving at ports in recent months has been relatively low. At present, the price of palm oil has exceeded 900 yuan/ton of soybean oil, which is basically on par with vegetable oil. Due to high prices, domestic palm oil consumption has been significantly compressed, restricting its price increase. In the situation where the domestic palm oil price rise is weaker than the international market, the phenomenon of import profit inversion will continue, and domestic palm oil inventories will remain low in the fourth quarter. As of October 29th, the palm oil port inventory was 501000 tons, a decrease of 37000 tons from last week and at a historically low level compared to the same period.
Overall, Malaysia's palm oil production is expected to steadily decline, and its palm oil reserves are also entering a trend of depletion. The B40 biodiesel policy will increase the consumption of palm oil in Indonesia, and the reduction in palm oil production in Indonesia will lead to low inventory, reduced export volume, and an increase in international vegetable oil import costs. China's palm oil import profit inversion restricts procurement, and port inventory continues to decline. Domestic and international supply is declining, and palm oil prices will remain high.