Rabobank maintained its bearish view on palm oil prices by keeping its forecast for Q1 at an average of MR2,600/mt or $662.40/mt, the bank said in its monthly commodities forecast report released Wednesday.
The forecast is based on factors which include higher-than-expected production of palm oil and lower soybean prices.
In February, both Malaysia and Indonesia produced lesser palm oil and had a lower level of inventory compared with January, in line with Rabobank's earlier expectations.
According to data from the Malaysian Palm Oil Board, or MPOB, the country produced 13.5% lesser palm oil in January compared with December. Malaysia had produced 1.6 million mt of palm oil in December.
In January, Malaysia's palm oil inventory had fallen by 6.7% month on month to 1.5 million mt largely on the back of the 6% month on month increase in exports, the report said.
Palm oil production and inventory in Malaysia and Indonesia were expected to fall further in February due to a seasonal downturn.
Rabobank, however, predicted a seasonal upswing in production from March onwards, as long as there were no extreme weather changes for the rest of the year.
Palm oil prices were also pressured lower by soybean complex prices, the report said.
Soyabean prices were supported in Q1 due to weather uncertainties in Argentina, however, soybean prices are generally weaker overall because of the large stock of soybean oil globally and a possibly record soybean crushing season in the US, the report added.
The spread between the price of CBOT soybean oil and palm oil on Bursa Malaysia narrowed to $53/mt in mid-February compared to $135/mt in early December, the Rabobank report said.
Meanwhile, Indian buyers would import more CPO in the coming months compared to refined, bleached and deodorised olein or RBD olein following the January announcement of the hike in Indian import duties for CPO to 33% from 30.9%.
The rise in import duties is not expected to impact Indian palm oil imports greatly because the rise was much smaller than the previous rise in November 2017.
Rabobank also said in its report that the Indonesian government, through the Indonesian Oil Palm Estate Fund, aims to replant 185,000 hectares of smallholder palm oil plantations in 2018.
The Indonesian Fund aims to collect a total of IDR 11 trillion ($802.51 million) in funds in 2018, out of which 70% will be used to fund biodiesel procurement.
The remainder will be allocated to replanting as well as research and development activities, the report said.
