COMMODITY UNDER FOCUS : CRUDE PALM OIL

Indonesia and Malaysia are biggest palm oil producing countries.

In fact they both produce around 85% of the global palm oil. These countries are also the biggest exporters and have a share of more than 90% in the global export market. India and China are the top importing nations, importing primarily from these 2 countries.

Bursa Malaysia Derivative Exchange (BMD), Malaysia, provides the global

benchmark for palm oil prices.  BMD Indian timing is from 8 a.m. to 10 a.m. in

the morning; the post noon session is from 12.30 p.m. to 3.30 p.m.

Domestic demand and supply…!

Palm oil has a significant presence in India’s edible oil consumption basket, as

nearly 40% of India’s annual edible oil requirement is met through it, almost all

of which is imported. In fact, in the annual edible oil import basket, palm oil

tops the list (around 77%). The major ports for palm oil imports are Kandla,

Haldia, Krishnapatanam, Chennai, JNPT, Kakinada, Mundra, and Mangalore.

According to the estimates of the Solvent Extractors’ Association of India,

India imported approximately 62.52 lakh tonnes of CPO and 15.76 lakh

tonnes of RBD palmolein during the 2013–14 oil year (November to October)

to remain the world’s largest importer of palm oil.

Key price influencers Global factors..!

Any adverse weather conditions in Malaysia and Indonesia (the biggest

producers) that influence palm output and inventories affect global prices.

Apart from that the other factors influencing palm prices are: wide

fluctuations in Indonesian and Malaysian currencies; government                                          policies on export tax of these two countries; global production,            

consumption and ending stocks of soya bean and other oilseeds as soyoil                           competes with palm oil in the global vegetable oil market; crude oil price movement as significant rise in energy prices lead to demand for alternate fuel like biofuel where vegetable oils are a major production input.

Domestic factors..!

Domestic oilseed (soya bean, groundnut, and rapeseed) output,

weather conditions during production, vegoil ending stocks, and oil import

data, are some of the factors that affect domestic palm oil prices.

In addition, government policies on import tax too influence prices.

Currently, government imposes a 7.5% duty on crude palm oil import and 15%

on refined edible oil import. As India imports a major share of its palm oil

consumption, any sharp move in Rupee is likely to have an immediate impact on

prices.

MCX CPO price review, June, 2015..!

MCX crude palm oil prices were lower in June owing to weak global vegoil

markets (BMD and CME), and so the most active (July, 2105) contract closed the

month at Rs. 447.80 per 10 kg, down on a monthly basis by 3.1%. A sharp fall in

Chinese equity markets and the ongoing Greek crisis took a toll on the

global commodity prices and palm oil was no exception.

Malaysia’s high inventory hit a six-month high of 2.24 million tonnes at the end of May,

putting pressure on CPO prices MCX CPO prices also remained under pressure due to the seasonal rise in production in Indonesia and Malaysia. However, caution over Indonesia’s new palm export levies limited losses. By the end of June, Indonesia announced that

it would introduce a levy on palm oil exports from July 16, 2015 which supported

domestic prices. 

Uncertainty about El Nino and its likely consequences alsoPalm oil being a major imported vegoil in India, hedgers can safely hedge on MCX, where the CPO contract has a high co- rrelation of more than 95% with the palm oil contract prices at Bursa Malaysia, the global benchmark for palm oil prices.

Companies thus can ensure stable profits by hedging their price risks

through crude palm oil futures traded on the MCX platform. Crude palm oil

futures at MCX are traded in the Indian rupee, thereby mitigating currency risks.

Average daily volumes at MCX have been about 31,160 tonnes in June

while the average daily open interest was around 91,660 tonnes.

MCX CPO futures contract is an important benchmark in the India edible

oil market. It has a very high correlation of more than 99% with spot prices at

Kandla, which is a hub of the imported vegoil market. Post-launch of the CPO

contract on MCX, Indian physical market participants, irrespective of their size,

have started considering MCX futures prices as a reference while negotiating

their physical deals.

Src: MCX CommNews,  JULY 2015

Share: