Palm oil's premium to be short lived, to fade with Indonesian supply

MUMBAI: Palm oil's rare premium over rival rapeseed oil and sunflower oil is likely to be short-lived and it should start trading at a discount once top producer Indonesia eases export curbs after Ramadan, industry participants told Reuters.

The premium has slowed down palm oil FCPOc3 purchases for April shipments by key importers in Asia, Africa and Europe as refiners were replacing palm oil with rapeseed and sunoil, they said.

Sunflower oil and canola oil prices have fallen by more than $250 per tonne so far in 2023 on higher supplies in Europe and north America. Palm oil prices during the period rose by $20 per tonne as supplies were disrupted in Indonesia and Malaysia, the world's largest and second-longest producers, respectively, because of heavy rainfall.

"As long as Indonesia is restricting exports, palm supplies will be artificially tight. When Indonesia returns in force as an exporter, palm will return to a discount," James Fry, chairman of commodities consultancy LMC International, told Reuters.

Last month, Indonesia suspended some palm oil export permits until April, to encourage exporters to increase domestic supply and secure new permits.

Exporters must now sell a portion of their palm oil products at home at a capped price under a domestic market obligation (DMO) scheme. Indonesia raised the DMO volume by 50% for February-April, anticipating a jump in cooking oil demand ahead of the Islamic holiday of Ramadan, during which large meals are prepared at night for Muslims that fast during the day.

Indonesia's export curbs prompted buyers to switch to supplies from Malaysia, but they face output problems from heavy rains and flooding earlier this year, said Anilkumar Bagani, research head of Mumbai-based vegetable oil broker Sunvin Group.

"The tight supply situation in top producing countries has been allowing palm oil to hold small premium over soft oils. But this premium will be there only for a brief period," Bagani said.

Limited palm oil supplies have not affected top buyers India and China, which took advantage of lower prices and built stocks in the past few months, said Fry of LMC.

In Europe and the United States vegetable oil demand for biodiesel has been falling because of a surge in supplies of used cooking oils, he said.

Rapeseed/canola production has rebounded in Europe and Canada, while Russia and Ukraine have been trying to liquidate sunflower seeds quickly, which has been putting pressure on prices of sunoil and rapeseed oil, said a Singapore based dealer with a global trade house.

"Except soyoil, all edible oils are getting hammered by sunoil and canola oil's glut. Soyoil will not correct since drought has curtailed Argentina's supplies," the dealer said.