"Therefore we expect only limited further downward pressure on palm oil prices." Palm oil prices hit eight-week lows on Monday following sharp falls last week caused by weaker outside markets plus concerns about rising Malaysian stocks.
The surge in Malaysian December palm oil stocks to a 13-month-high was due to technical factors that shifted sales to Indonesia rather than lower demand, Oil World said. "The sharp decline in Malaysian palm oil exports and the resulting higher-than-expected Malaysian end-month stocks was partly due to very large Indonesian exports of palm oil in December, as market participants rushed ahead and exported as much as possible prior to the three percent Indonesian palm oil export tax from January 1," it said.
"This apparently resulted in a reduction of Indonesian palm oil stocks. Some of the Indonesian palm oil shows up in the Malaysian palm oil stocks." Oil World estimates Indonesian 2009 calendar year palm oil exports rose to at least 16.0 million tonnes from 14.61 million tonnes in 2008.
"Although Malaysian palm oil production will continue to decline seasonally in January-March 2010, the very large inventories currently available will raise Malaysian supplies above expectations this quarter," it said. "We expect some additional setback in palm oil prices in the near term."