KUALA LUMPUR (May 20): Fitch Solutions Country Risk and Industry Research said palm oil prices have now peaked, as Indonesia announces the lifting of its export ban and Malaysia moves to increase exports.

In its weekly commodities strategy report on Thursday (May 19), the firm said it now expects prices to remain on a steady downtrend, as greater seaborne supply eases the pressure on the market that originated even prior to the Russian invasion of Ukraine.

“In the longer term, we highlight Malaysia as a benefactor should Indonesia decided to reimpose a ban on palm oil exports, with exports from the country rising significantly during Indonesia's short-lived ban,” it said.

Fitch Solutions said the short-lived Indonesian palm oil export ban enacted in April 2022 has served to exacerbate severe supply-side pressures in the global edible oils market, caused by the Russia-Ukraine conflict and adverse weather conditions in key producer markets.

“Indeed, palm oil prices had already risen to historical highs following Russia's invasion of Ukraine in February.

“Third month palm oil futures rose to RM7,268/tonne in March, compared to RM4,857/tonne at the start of 2022.

“This was a result of supply concerns surrounding sunflower oil, a vegetable oil for which palm oil can be substituted,” it said.

The firm said that in 2020, Russian and Ukrainian exports of vegetable oils derived from sunflower seeds, safflower and cotton seeds constituted one-third of seaborne supply.

Palm oil prices to ease in the coming weeks

Fitch Solutions said deliveries of Malaysian palm oil accelerated in the wake of Indonesia's April 28 decision to prohibit temporarily the export of the edible oil in response to domestic price inflation.

It said exports of palm oil from Malaysia increased by 40% m-o-m to almost 310,000 tonnes during the first 10 days of May 2022, citing data provided by Intertrek, as importers sought to replace purchases from Indonesia.

Malaysia as a benefactor

Fitch Solutions said in 2010/11, Malaysia and Indonesia accounted for a roughly equal share of global palm oil exports, 46% and 44% respectively, but have diverged during the interceding decade, with Indonesia constituting 56% of the market in 2020/21 and Malaysia just 33%.

“Indonesia’s decision to prohibit palm oil exports had the potential to inflict long-term reputational damage to its industry, a risk that would grow with the duration of the ban, to the benefit of Malaysian exporters,” it said.