Palm Oil Market Faces Pressure Amid Rising Malaysia Inventories, India’s Import Surge

Welcome back to Globoil Post, your premier source for insights into the global edible oil and agri-trade industry.

In this comprehensive article, Dr. Sathia Varqa, Managing Editor of Fastmarkets Palm Oil Analytics, leverages his decades of expertise in global commodity markets to provide critical insights into the current palm oil dynamics. As Malaysia's palm oil inventories rise for the third consecutive month amid declining exports and reduced production, and with India’s imports surging despite falling domestic stocks, Dr. Varqa explores the resulting volatility in global supply and demand, and the mounting pressure on prices.

1. Recent data indicates that Malaysia's palm oil inventories have risen for the third consecutive month due to a decline in exports outweighing the reduction in output. How do you anticipate this inventory buildup will influence global palm oil prices and market stability in the short to long term?

I think Malaysian palm oil inventories will fluctuate between below and above the 2 million tonnes mark for some time. Palm prices have been heading lower since the start of July as production picked up pace, doing better than most people expected, but there are variations between plantations and regions, with some reporting a fall in output from the impact of El Niño, while others reported strong growth. Nevertheless, Malaysia’s national production is up 11% in the first 7 months of this year compared to the same period last year. I expect prices to remain under pressure from a better supply outlook and elevated stocks, plus palm’s less competitive position compared to soft oils in terms of pricing. I will discuss more on some of the big developments shaping the palm oil sector in 2024 and the production forecast for 2025 at the upcoming largest Indian palm oil gathering, Globoil, in Mumbai this September.

2. With India's palm oil imports increasing significantly, yet stocks falling to near two-year lows, how do you see these import patterns affecting global supply and demand dynamics? Could you elaborate on the potential impact of India's import strategies on the global palm oil market, particularly concerning price volatility and trade flows?

India is the largest palm oil buyer in the world, so any policy changes will have an immediate impact on palm prices on CPO futures in the short term, and this will cascade to cash prices in both the largest palm producer, Indonesia, and the second largest producer, Malaysia. India's edible oil stocks are under stress despite strong import volumes; this is due to the voracious domestic demand in the country as middle-class earnings grow and refining margins remain attractive. Any policy adjustments to limit edible oil inflows could see a rise in edible oil prices in the country, fuelling prospects of higher inflation while raising potential stocks in Malaysia and Indonesia, thus dampening prices. India will remain a key player in edible oil imports for a long time, so any talk of edible oil policy changes, especially nearer the federal budget period in February, is likely to cause price volatility. I look forward to hearing the lively discussion on Indian domestic production and policy announcements from the government at the upcoming Globoil conference in September.

3. What are the main geopolitical factors that can swing palm and other commodity prices?

There are known geopolitical factors, but also unknown and unpredictable ones. The main ones we know are the ongoing Ukraine-Russia war and the conflict in the Middle East. Unfortunately, these two events are becoming normal and clearly inconclusive. This ongoing conflict can trigger lots of unexpected episodes, causing volatility in prices and affecting other sectors. The other big event is the US Presidential election. Whoever wins the election, the tariff war with China will not dissipate; it will only increase and possibly indirectly benefit the palm sector in meeting export demand to China. What the Chinese domestic policy measures will be in 2024 to regain the growth story is unknown. China is the world’s second-largest economy, so any national-level policy changes to boost domestic growth will have an impact on global demand. The Chinese economy is struggling to recover after years of an average 9% GDP growth; the economy has been underperforming, stuck between 4-5% growth since 2022. 2023 GDP growth is the slowest pace of annual rise since 1990, underscoring the impact of a prolonged property crisis, persistently weak consumption, and global turmoil.

In conclusion, the reason why we are discussing prices, production, and policies is because of food security. The overarching principle that should underpin any conversation on agriculture is the oneness of humanity, as stated by the Bahá’í International Community (BIC) in a new statement on the future of agriculture in the European Union in July of this year.

This means several broad considerations are essential to effective reforms to food systems, including: justice as a guiding principle in international relations to ensure that trade is fair and beneficial to all; the need to revisit the assumption that competition and relentless growth are essential for material well-being; prioritizing the needs of farmers of all scales of production; and fostering educational systems that emphasize the nobility of farming and encourage youth to apply their intellectual and scientific capabilities toward the development of new, sustainable, and context-appropriate technologies.

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