1. Price Trend

SunSirs News: Palm oil in 2019 can be described as a soaring year. Up to December 17, the average domestic palm oil price was 6,180 RMB/ton, and the price rose 47.85% compared to the beginning of the year. The current rising market is extremely similar to the 2016 rising market. Similarly, palm rose 11 months in 2016, with the highest price exceeding 6,500 RMB/ton, an increase of more than 40%.

By 2017 and 2018, palm oil price significantly slumped. The price fell all the way, from the high price of 6,500 RMB/ton to 4,100 RMB/ton. It can be described as a bear market. In 2019, it has completely shaken off the shade of two years of continuous decline from 2017 to 2018, and has bottomed out. The price has risen from 4,100 RMB/ton to 6,200 RMB/ton. However, whether it can return to the high price in 2016 is still unknown.

The road of soaring in 2019 is mainly reflected in the second half of 2019, especially in the last four quarters. Palm oil has been experience rising, rising, and rising. Even if there is an occasional pullback, it is still difficult to stop its rise. The overall increase in the second half of the year is 44% while the fourth quarter accounted for more than 30%. The fourth quarter is the main force of the palm oil surge in 2019, is the king of 2019.

The overall trend of palm oil in 2019 can be divided into two phases.

The first stage (January to June): palm oil performance was inactive in the first half of the year, and the market was not shocked. The highest market price was only 4,700 RMB/ton, and the price rose by more than 500 RMB per ton. On January 1, the average price of palm oil market was 4,180 RMB/ton. On June 30, the average price of palm oil market was 4,264 RMB/ton, and the price generally rose by 2.01%.  

The second stage (July to December): the palm oil market skyrocketed in the second half of the year. The price rose from 4,300 RMB/ton to 6,180 RMB/ton, and the price rose by nearly 2,000 RMB per ton, an increase of more than 40%. On July 1, the average palm oil market price was 4,290 RMB/ton. On December 17, the average palm oil market price was 6,180 RMB/ton. The price rose by 44.06%.

To answer why in the first half of 2019, palm oil continued the slump as it is in 2017 and 2018, while in the second half of the year, a surge similar to that in 2016 was staged, we will analyze it in detail below. However, one comment is that this condition is separate from the supply and demand relationship of palm oil.

2. Market Analysis

Palm oil is one of the three major vegetable oil varieties. The terminal is mainly for catering and industrial purposes, and demand is basically stable. Therefore, its price is greatly affected by supply. China itself does not produce palm oil. It basically depends on imports, mainly from Malaysia and Indonesia.

According to SunSirs' import statistics for 2012-2018, the total amount of palm oil imports in 2012 was the highest, reaching at 5.23 million tons. In 2016, the major palm oil producing countries reduced production. Palm oil production fell sharply. The total amount of China’s palm oil import was 3.16 million tons, a year-on-year decrease of 26.8%, which is the lowest in the past 8 years.

Palm oil prices rose sharply in 2016, mainly due to production cuts in major producing countries. Futures prices rose sharply, and prices continued to rise to 6500 RMB. In 2017-2018, palm oil production in the main producing countries resumed. China’s palm oil imports have gradually increased, with imports ranging from 3.5 to 3.6 million tons. In the second half of 2019, dry weather occurred in the major palm oil producing countries, and production and stocks declined. Coupled with the support of biodiesel policies, prices once again took off.

Malaysian palm oil production and stocks are significantly reduced. Palm oil market is supported.

Malaysia’s palm oil planting distribution (January to November): from January to July, Malaysian palm oil production increased and decreased to varying degrees. After reaching the minimum level in June, it increased significantly in July. Beginning in August, due to the effects of dry weather, the output of Malayisan palm oil has gradually decreased. In October and November, the reduction in blessings expanded, and November production was close to the lowest point in June. The MPOB report shows that Malaysia’s palm oil output in October was 1,795,880 tons, a year-on-year decrease of nearly 8% and a significantly decreased by 2.7% on month-on-month basis. Malaysia’s crude palm oil output in November was 15,380,54 tons. October 2019’s crude palm oil production was 1,795,880 tons, a decrease of 10.1% from the previous month.

Malaysian palm oil stocks (January to November): In June, Malaysian palm oil stocks remained the lowest. In October and November, Malaysian palm oil stocks were lower than that in June. The MPOB report shows that at the end of October, Malaysia's palm oil stocks were 2,348,066 tons, a decrease of 4.1% from the previous month. In September, Malaysia's palm oil stocks were 2,448,272 tons. And at the end of October last year, the amount is 2,272,391 tons, and a year-on-year decrease of 13.74%.

Biodiesel policy supports palm oil demand is expected to increase significantly.

News: Indonesia and the United States have actively promoted favorable policies for biodiesel. According to Indonesian news on November 20, the Indonesian Ministry of Energy has approved the addition of 72,000 kiloliters of fatty acid methyl esters (referred to as FAME, using palm oil as a raw material) for B30 comprehensive trial project. Indonesia plans to implement the B30 biodiesel blending project in 2020, which mandates the blending of 30% palm oil in diesel.

Multiple positive factors stack up Palm oil outbreak in the fourth quarter.

In the first half of 2019, there was limited support for biodiesel policy, so palm oil did not stage a big rally in June. Entering the fourth quarter, news is that biodiesel is back again. Malaysia, as one of main producing countries, its output and inventory has all significantly reduced. Under the support of bullish news, palm oil broke out. Futures rose to daily limits, and the daily increase was 200-300 RMB/ton. The rise in prices continued to be corrected in the past few days, but it still could not stop the trend of rising palm oil. After several daily limits, the average price of palm oil in December exceeded the 6200 RMB mark, which is only one step away from the highest price in 2016. The year 2019 of palm oil can be described as "brilliant".

Import (January to October): China's palm oil imports in October once again ushered in a sharp increase. China's October imports of palm oil were 795,188 tons, an increase of 73% year-on-year and an increase of 38%. From January to October 2019, the import volume of palm oil was as high as 4.43 million tons, which was nearly one million tons higher than that of 2017 and 2018. Supply is still loose. Palm oil is expected to reach the height of 2019 in 2020.

3. Market Forecasting

The surge in palm oil in 2019 is mainly due to the continuously new low of palm oil production and inventory in major producing countries, the adjustment of biodiesel policy, and the expected increase in palm oil demand. Palm oil is still on the rise in the short term and is likely to rise instead of falling. In 2020, palm oil still has room to rise under the support of expected production reductions in major producing countries. It is difficult to say whether 2020 can continue the bull market in 2019.

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