Recently, the pressure from the macro shock and the Indonesian expansion of the two sides continues to act on the palm oil market, and the main contract of palm oil futures 2209 has rapidly fallen from the previous 12382 yuan / ton to the mark of 8000 yuan / ton. Yesterday, MPOB Malaysia's June palm oil supply and demand report was released: Malaysia's June palm oil inventory was 1655073 tons, an increase of 8.76% month-on-month, up from 1.614 million tons in the same period last year.
Although the overall neutrality of the report is more, but under the influence of the continuous strengthening of the US dollar index, the palm oil disk is still under pressure, the main contract closed at 8016 yuan / ton with a decline of 2.55%, and the palm oil jumped low in the night session, and the decline was not stopped, losing the 8000 yuan / ton mark. As of the close of 23:00, palms were down more than 6%.
According to Shi Hengyu, chief analyst of vegetable oil at Zhongtai Futures Research Institute, the main focus of Malaysia's June supply and demand data is in production and inventory. Before the release of the report, the estimated range of production of non-governmental institutions was 1.538 million to 1.58 million tons, and the reported data was 1.545 million tons, which was near the lower edge of the estimated range; the inventory estimation range of non-governmental institutions was 1.599 million tons to 1.72 million tons, and the reported data was 1.655 million tons, which was near the central axis of the estimated range, but considering that the output data was at a low level, the inventory data of 1.655 million tons appeared slightly empty.
"However, as Indonesia's current inventory levels are still high, Malaysia's production and inventory fluctuations cannot have a decisive impact on the spot market and market conditions, and the market's attention is still focused on the Indonesian side." Shi Hengyu said.
In the view of Chen Yanjie, an analyst at Xinhu Futures Oil and OilSeeds, the main logic of the current international palm oil trading is still macro risks and the expectation of accelerated exports of Indonesian palm oil, and the MPOB June supply and demand report has a limited impact on the disk. She said that there was no gap in the opening of the brown afternoon yesterday, and the oil and fat continued to weaken in the afternoon, more following the overall sentiment of the market.
In fact, since entering June, palm oil has followed a rapid and sharp decline in international commodities, including other bulk vegetable oils, mainly driven by both macro and fundamental aspects. Specifically, it is mainly due to the risk of recession caused by the expectation of us interest rate hikes, and the expectation that Indonesian palm oil exports are expected to accelerate.
From a macro level, Shi Hengyu said that the Fed's interest rate hike has led the monetary policy of many countries around the world into a tightening cycle, and the allocation of funds has withdrawn from commodities. After the second quarter of 2021, the growth rate of US broad money has dropped significantly year-on-year, which means that the "water release" action that began after the middle of 2020 began to slow down; After the third quarter of this year, the Fed began to raise interest rates, and at the FOMC in June, the Fed announced a one-time interest rate hike of 75 basis points, which is the largest adjustment this year, causing a strong psychological impact on financial markets. The idea of allocation funds on commodities has changed from the previous "inflation allocation" to "recession expectations", and the net long positions established before have continued to flow out.
Fundamentally, after entering June, the Indonesian government resumed palm oil exports, and the pressure on the supply side of global oil and fat increased sharply.
In order to control its domestic inflation level and protect people's livelihood, the Indonesian government has introduced a series of measures since New Year's Day this year, including domestic retail price subsidies, maximum retail price restrictions for terminal retail, and export quota ratios (DMO). In late April, the Indonesian government issued a 'king fry': banning the export of all palm wool oil and refined oil. Indonesia's monthly exports of palm oil and refined oil are around 3 million tons, and domestic consumption is only about 1.5 million tons per month, and the export ban has led to a rapid rise in Indonesia's domestic palm oil stocks. After June, the Indonesian government resumed the export of palm oil, although there are still some objective restrictions on the process approval, but the short-term gap has been basically filled, resulting in palm oil in recent months contract quotation led to a rapid and sharp decline in global vegetable oil prices. Shi Hengyu said.
South China Futures agricultural products analyst Bian Shuyang said that according to the current known Indonesian balance sheet and the deduction of the future market, one situation is that the previous export restrictions have an impact on the yield level of palm fruit in the future, assuming that the purchase price of fresh fruit bunches in the press plant cannot cover the cost of picking the plantation, the picking progress of the plantation will slow down, and the failure to pick the mature fruit bunch on the tree in time will affect the future yield capacity of the palm tree. In the case of the continuous impact of yield capacity in the future, Indonesia's inventory pressure will be significantly improved due to the reduction of yield, Indonesia's total export volume in the next three months is estimated to be at a normal low level of about 6 million tons, the corresponding inventory level is high, but the expansion situation will be significantly alleviated, about the next three months to continue at the level of about 6 million tons. Another situation is that the previous export restrictions did not affect the yield level of palm fruit in the future, which means that although the price of fresh fruit bunches is low, the production and operation of palm gardens has not had a significant impact, although there will be a decrease in the total output of crude palm oil squeezed out of the quality of some fresh fruit bunches, but the reduction in yield is expected to occur only in May, and the yield of palm oil will return to normal levels by June. In the next three months, when total exports rise to the level of 7 million tons, Indonesia will face great inventory pressure until September, with monthly inventory of about 8 million tons.
"But it is worth noting that regardless of whether future yields are optimistic or not, Indonesian inventories in the past three months are expected to be higher than the normal inventory level of less than 4 million tons." Bian Shuyang said.
It is understood that at present, Indonesian inventories are still at an extremely high level. Chen Yanjie said that from the perspective of the number of palm oil export licenses issued in Indonesia and the actual export volume of palm oil, the export speed and quantity of palm oil in Indonesia in June were slower than the market expected. In June, Indonesian palm oil inventories were expected to reach 8.5 million tonnes, and the crushing plant and most of the refineries had swelled. Since July, Indonesian palm oil stocks have theoretically increased slightly, or production has been limited due to expansion. Judging from the recent Gapki news, palm oil mills have begun to stop production. As the current export volume is based on lower than normal levels, Indonesian palm oil stocks are expected to continue unabated.
"If this problem is not solved, Indonesia's palm oil industry will continue to be semi-stagnant – crude oil crushing, dispensing and refining operating rates will be at a very low level." As a result, we believe that the fundamental bearish side of palm oil has not been fully traded. Shi Hengyu said.
"Overall, due to Indonesia's increased exports and the opening of the Ukrainian export window and the expected rise in energy prices, many negative factors have accumulated, which has greatly hit the international palm oil price, and domestic oils and fats are currently affected by international palm oil prices and international energy prices. In addition, from the perspective of positions, the continuous stop loss of the previous long order further hit the price of the domestic disk, resulting in a significant weakening of the domestic vegetable oil price. Bian Shuyang said.
For the future market, interviewees said that it is still necessary to pay attention to both macro and fundamental factors.
The Fed could continue to raise rates by 75 basis points at the July rate conference. The macro risks posed by a stronger U.S. dollar and Indonesian palm oil policy will remain dominant, with the former likely to have a greater impact. Chen Yanjie said that although the current export volume of Indonesian palm oil is still low due to export restriction policies, the price of indonesian crude palm has fallen below the cost or even the cost, and the quotation of Indonesian palm oil FOB continues to decline. In the coming period, fundamentals will focus on the extent to which Indonesian palm oil export taxes will fall and whether export restrictions will be further lifted. In the medium term, if market sentiment is to improve, on the one hand, it is necessary to look at the macro, on the other hand, Indonesia needs to give clear expectations in terms of policy. After the price bottom and policy bottom are clear, if the macro atmosphere improves, the disk may have a turnaround.
Bian Shuyang believes that at present, with the basic clearance of vegetable oil bulls in the early stage, the vegetable oil market will trade its own supply and demand fundamentals. He said that in the short term, oil prices may rebound slightly because the domestic palm oil inventory performance is not abundant, the differentiation of internal and external inventories is very obvious and the temporary trading of major oil and fat consuming countries' phased replenishment demand and oil prices rebound slightly, but the downward pressure on the global economy under the consumption deterioration eventually led to a decline in energy prices, it is expected that the far-end energy price decline will further bear the conditions for global vegetable oil prices. In addition, the complete opening of Ukraine's export channels has brought more international oil and fat supply increments, which has suppressed the price of oil and fat.
In addition, Shi Hengyu said that the Indonesian government has recently discussed ways to increase domestic consumption by increasing the proportion of palm fatty acid methyl esters in biodiesel to reduce its domestic inventory pressure, but neither B35 nor B40 can play a role in rapid destocking in the short term. "Therefore, Indonesia's way of destocking must be by reducing tariffs and relaxing quantity restrictions." And the final destination, there is a high probability that China needs to solve it. Among the two major export destinations of palm oil exporters in Southeast Asia, India, the European Union and other countries have not changed much in the past two years, and China's imports have been suppressed by high prices in the early stage. Shi Hengyu said.
According to reports, the mainland imported palm oil products are mainly refined palm liquid oil and palm stearin, in conventional years, the former accounted for a relatively high proportion. The main use of refined palm oil, which is commonly referred to as 24 degree palm oil, is to enter the catering and cooking fields after the low-grade oil is proposed. However, due to the continuous high quotation of origin, the production cost of low-grade palm oil in China has been significantly inverted from other vegetable oils, resulting in the consumption of low-grade palm oil being reduced to a level close to disappearing.
"Therefore, if Indonesia wants to accelerate exports to reduce inventories, it can only completely solve the problem by taking the initiative to give profits and recover the consumption of low-grade palm oil from the share of soybean oil replaced by the domestic market in China." In other words, the price of palm oil also needs a large downward space to grab back the previously lost share on the consumer side, so that supply and demand can be rebalanced. Shi Hengyu thought.
This article originated from Futures Daily