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Palm Oil futures: Malaysia supply issues add to global price momentum

By  Yoke Wong

Edited by Jekaterina Drozdovica

16:04, 25 October 2022

A basket of palm fruits in a basket of vegetable oil on an old wooden floor.
Malaysia palm oil supply issues add to global price momentum Photo: nirapai boonpheng / Shutterstock

Palm oil futures rose over the past month as unseasonably heavy rainfall cut output in key producing countries: Indonesia and Malaysia. 

Indonesia is the world's largest palm oil producer, accounting for 59% of global output in 2022, the US Department of Agriculture (USDA) data showed. Malaysia is the second largest producer, contributing to one-quarter of the world supply.

What’s next for the palm oil market? Here we take a look at its key drivers and the latest palm oil futures news.

What are palm oil futures?

Crude palm oil futures are derivatives with palm oil as the underlying asset. They are traded on exchanges such as the Bursa Malaysia Derivatives Exchange, Multi Commodity Exchange of India (MCX), the Asia Pacific Exchange (APEX) and the Chicago Mercantile Exchange (CME). 

As Malaysia is the world's second largest palm oil producer, the contract in Bursa Malaysia is widely seen as the benchmark for the global market. Futures traded in Bursa Malaysia are denominated in its local currency, the Malaysian ringgit (MYR). The minimum contract size is 25 metric tonnes. Contracts traded at Bursa Malaysia are settled by physical delivery. 

In contrast, the US dollar Malaysian crude palm oil futures are US dollar-denominated and financially settled. 

Palm oil is a key ingredient in food manufacturing, commonly used in confectionery, cooking oils and other food products. It is also a biofuel. Refined palm oil is used in the production of beauty and cleaning products. Due to the extensive use of palm oil globally, the price of palm oil has a major impact on the costs of food and consumer goods.

What’s driving palm oil price right now?

A rare third consecutive La Nina weather phenomenon is bringing higher than normal rainfall across Southeast Asia and causing flooding in some regions. As a result, this has affected the harvesting of oil palms and production. 

The November Malaysian crude palm oil futures traded on the Bursa Malaysia Derivatives Exchange rose to $870.75 a metric tonne, up 5.6% from a month ago. 

Natural Gas

2.27 Price
+5.390% 1D Chg, %
Long position overnight fee -0.0564%
Short position overnight fee 0.0345%
Overnight fee time 21:00 (UTC)
Spread 0.0050

Oil - Crude

78.19 Price
-0.680% 1D Chg, %
Long position overnight fee 0.0368%
Short position overnight fee -0.0587%
Overnight fee time 21:00 (UTC)
Spread 0.030

Oil - Brent

81.53 Price
-0.430% 1D Chg, %
Long position overnight fee 0.0252%
Short position overnight fee -0.0471%
Overnight fee time 21:00 (UTC)
Spread 0.032

Silver

29.07 Price
-0.510% 1D Chg, %
Long position overnight fee -0.0199%
Short position overnight fee 0.0117%
Overnight fee time 21:00 (UTC)
Spread 0.032

Boosted by post-pandemic demand, crude palm oil prices have been rising since December 2020 and hit an all-time high at just above $2,000 a tonne in March. 

On 28 April, Indonesia imposed a three-week export ban to curb soaring prices of domestic cooking oil in the country. The ban was lifted on 23 May, but the Indonesian government introduced requirements for exports, such as a domestic reserve to safeguard 10 million tonnes of domestic cooking oil supplies. 

Amid improving supply following the lifting of Indonesia’s export ban, the price of palm oil started to fall in May as recession fear pulled global demand lower. The November palm oil contract fell to a 1.5-year low at $708 on 28 September, before rebounding in October. 

Malaysian crude palm oil calendar futures (November 2022), in USD 

Palm oil price outlook and forecast 

Despite the price increase over the past month, at the end of September, Fitch Ratings predicted the average crude palm oil prices to fall to $700 a tonne in 2023, noting:

“A sustained shortage of manpower in Malaysia, the world’s second-largest producer, has impeded output growth for the industry. However, we expect the situation to improve gradually and lead to significantly higher palm oil supply over the next year, supported by favourable weather conditions.”

Financial data provider Trading Economics, as of 25 October, expected palm oil price to trade at MYR3,927.94 ($2,939.63) a tonne by the end of the fourth quarter, falling to MYR3,451.50 in 12 months’ time. 

Note that analyst predictions can be wrong. Always conduct your own due diligence before trading, looking at the latest news, a wide range of analyst commentary, technical and fundamental analysis on the stock. Keep in mind that past performance does not guarantee future returns. And never trade money that you cannot afford to lose.

FAQs

What is the rate of palm oil today?

You can find out the rate of palm oil and its price settlement on different exchanges such as the Bursa Malaysia, CME and MCX.

Is palm oil seasonal?

Oil palms are able to produce high quantities of oil almost all year round, so it is not seasonal compared with other oil seeds. However, production in Malaysia and Indonesia can be hindered by weather-related disruptions caused by heavy rainfall during monsoon seasons.

Is palm oil sustainable?

According to the World Wildlife Foundation (WWF), palm oil plantations are a major driver of deforestation, contributing to climate change and loss of wildlife habitats. Such production is not sustainable but there are ways to produce it more sustainably.

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