The MPOB's June palm oil supply and demand report fell short of market expectations, trading at lower values due to pressure on Indonesian stocks and pessimistic macro consumption, although the report was more positive compared to market expectations.

Any improvement on Indonesia's overstocking situation?

The increase in exports from Indonesia, the opening of the export window in Ukraine, as well as fall in energy prices brought by the expectation of interest rate hikes, many negative factors piled up and greatly hit the international palm oil prices. Oils and fats prices in China are currently falling sharply due to the impact of international palm oil prices and international energy prices.

In addition, from a position point of view, the continuous stop loss of orders in the previous period further hit the price, resulting in a significant weakening of domestic vegetable oil prices.

Based on what is currently known about Indonesia's balance sheet, we extrapolate a post-market scenario: one scenario is that the prior export restrictions have had an impact on future palm fruit production levels. Under this scenario, the price of buying fresh bunches from crushers will not cover the cost of picking from plantations, the harvesting process in plantations will slow down and the inability to pick ripe bunches from trees in a timely manner will affect the future yield capacity of palm trees.

Going forward, with production continuing to be impacted, Indonesia's stockpile pressure will be significantly relieved. Total Indonesian exports are estimated at around 6 million tonnes over the next three months, which is at a normal to low level. Although the corresponding stock levels remain high, the overstocking situation will be largely alleviated.

The other scenario is that the export restrictions have not affected future palm fruit production, meaning that palm plantation operations have not been greatly affected despite the low price of fresh fruit bunches. Although total palm oil production from  fresh fruit bunches will be lower and quality will be affected, the reduction in production is only expected to occur in May and it will return to normal levels by June.

With total exports increasing to a level of 7 million tonnes over the next three months, Indonesia will face significant inventory pressure in the future until September, with stocks of around 8 million tonnes per month or more. However, regardless of the future yields, Indonesian stocks for recent three months are expected to be higher than the normal stock levels of below 4 million tonnes.

Under what circumstances does market sentiment take a turn?

At the moment, with the long position of vegetable oil basically cleared, the market will be trading more of its own supply and demand fundamentals. In the short term, probably because of the domestic palm oil inventory performance is not abundant, the internal and external inventory differentiation performance is very obvious. And, brief trading major oil and grease consumer countries stage replenishment demand makes oil and grease prices rebound slightly, but the global economy under downward pressure of poor consumption eventually lead to energy prices back down. In addition, the complete opening of the Ukrainian export channel brings more incremental international oil and grease supply, suppressing oil and grease prices.