Pressure mounts on palm oil prices

Pressure mounts on palm oil prices

LONDON (Reuters): Vegetable oil prices face increasing pressure from higher than expected production and low demand, European traders said yesterday.

Crude palm oil was finding few buyers because European consumers stocked up on RBD palm oil from Malaysia during the Indonesian export ban at the beginning of the year.

"Our plants are geared to crude palm oil, but there is plenty of RBD palm oil in Europe and it's a lot cheaper than the crude, so we will use it," one consumer said.

As of July 21 stocks of palm oil in tanks in Rotterdam stood at 99,622 tons, up 5,416 from the previous week.

Indonesia banned the export of crude palm oil and by-products between the end of December and mid-April in an attempt to bring local cooking oil prices under control after the falling rupiah sent the market soaring.

The ban was replaced on April 22 by export duties of 40 percent for crude palm oil and 35 percent for olein. These were increased to 60 percent for crude palm oil and 55 percent for olein on July 10 as the falling rupiah meant local producers continued to find it more profitable to export rather than sell locally.

But traders expected cooking oil to become more freely available in the Indonesian market owing to the actions of the state commodity regulator Bulog and a pick-up in palm oil output.

Bulog has opened a tender to buy 29,000 tons of palm olein from private companies during July and plans to buy a further 60,000 tons from state-run plantations.

"Indonesia got off to a bad start this year, but production looks as if it will soon pick up and this, coupled with the Bulog action, will saturate the local market," a broker said.

Traders estimate Indonesia will produce 5.1 million tons of crude palm oil this year. About half of that will go to the local market, leaving the rest available for export.

Traders said reports indicated that the El Nio weather phenomenon had not hit Malaysian output as hard as expected.

In his latest report private forecaster Ivan Wong predicted an increase of nine percent in palm oil output for July over June. He said local palm oil production would rise to 760,000 to 765,000 tons in July, up eight to nine percent from June.

End-July stocks were seen at 735,000 to 745,000 tons compared with the Palm Oil Registration and Licensing Authority's figure of 694,833 tons at end-June.

"Even the Malaysians are bearish on palm oil," one trader said.

Traders also expected mounting pressure from the U.S. soybean crop.

"The people on the ground who grow the soybeans say they are heading for a big crop this year," said one trader.

"Growing condition are near perfect," said another. Soyoil prices fell in Chicago on Wednesday, with nearby contracts finishing at 10-month lows on forecasts of good growing conditions.

Traders said the absence of extreme heat or dryness in the forecasts was significant because the crop was at or near its critical pod-setting stage.

"Prices are not going fall suddenly, but with all these factors coming together there is going to be a steady build-up of pressure," a broker said.