Oils and fats have "ingredients": Palm oil opened low and rose in the third quarter, and may continue to rise in the fourth quarter

    Introduction: In the third quarter, low inventories of palm oil in production areas and frequent favorable macroeconomic policies in the market boosted spot prices, leading to a wide rise in late September to a two-year high. Against the backdrop of reduced production and increased demand for raw wood in the fourth quarter, the supply and demand in production areas may tighten. Domestic supply and demand are weak, and port inventories continue to be low. Coupled with favorable macroeconomic policies, it is expected that palm oil spot prices will continue to rise in the fourth quarter.

    Palm oil spot prices rise to a two-year high in the third quarter

    In the third quarter of 2024, the fluctuation of domestic palm oil spot prices expanded, and in mid September, they rose strongly, reaching the highest level in nearly two years. As of September 30th, the average spot price of 24 degree palm oil in major domestic markets (Zhangjiagang, Tianjin, Guangzhou, Rizhao) was 8783 yuan/ton, an increase of 944 yuan/ton or 12.04% from the end of the second quarter. The average price in the third quarter was 8062 yuan/ton, an increase of 20 yuan/ton or 0.25% compared to the second quarter; Year on year increase of 367 yuan/ton, an increase of 4.77%.

    The fluctuation of palm oil spot prices in the third quarter is directly related to changes in supply and demand in the production area, domestic inventory situation, and macroeconomic sentiment.

    The maintenance of low inventory in the production area is the main factor supporting the strengthening of palm oil prices.Malaysia and Indonesia, as the two major producers and exporters of palm oil, have domestic inventories at relatively low levels in recent years. According to the Malaysian Palm Oil Board (MPOB), the palm oil inventory at the end of the third quarter was 2.0138 million tons, an increase of 184300 tons compared to the previous quarter, with a growth rate of 10.04%. The Indonesian Palm Oil Association (GAPKI) reported that as of the end of July, palm oil inventories had dropped to their lowest level in nearly five years. There is currently no significant shipping pressure in the production area, which supports the rise in palm oil prices.

    Production in production areas in the third quarter fell short of expectations

    Due to the impact of extreme weather, Indonesia's palm oil production declined year-on-year in 2024. According to GAPKI data, the cumulative production of palm oil products from January to July 2024 was 30.14 million tons, a decrease of 1.92 million tons or 5.99% year-on-year. However, the production of horse palm continues to increase. According to MPOB data, the output of horse palm in the third quarter was 5.557 million tons, an increase of 435000 tons or 15.24% compared to the second quarter; Year on year increase of 367000 tons or 7.07%; The cumulative production from January to September 2024 was 14.43 million tons, an increase of 1.15 million tons or 8.66% year-on-year. Overall, the year-on-year decline in palm oil production in the production area provides favorable support for palm oil prices.

    India's imports and Indonesia's demand for raw wood increase

    Palm oil production declined in the third quarter, but demand for raw wood in India and Indonesia increased compared to the second quarter. India, as the largest importer of palm oil, saw an increase in imports in the third quarter. Due to the expected increase in demand for future festivals in India, palm oil reached a nearly five-year high of 1.08 million tons in July. Subsequently, the Indian government anticipated an increase in import tariffs on edible oils such as palm oil to protect domestic industries, and the willingness of importers to import increased before the implementation of tariff policies. In mid September, India increased its import tariffs on edible oil from 5.5% to 27.5%, which suppressed palm oil imports. Coupled with high inventories of edible oil at Indian ports, the import volume declined in September. According to data from the Solvent Extractors Association of India (SEA) and market estimates, the import volume of palm oil in the third quarter was 2.41 million tons, an increase of 8.07% compared to the previous quarter.

    On the other hand, the demand for biodiesel in Indonesia has increased. As the main incremental demand for palm oil, the biodiesel sector in Indonesia saw a significant increase in demand for palm oil in the third quarter. According to data released by GAPKI, as of the end of July, the consumption of palm oil by biodiesel in Indonesia was 6.44 million tons, an increase of 1.02 million tons or 18.8% year-on-year. The increase in demand from India and Indonesia has a positive impact on palm oil prices.

    In addition, Indonesia's plan to impose tariffs on China in early July, Indonesia's plans to produce B40 and B50 diesel in late August, the Federal Reserve's unexpected interest rate cut in late September, and domestic monetary easing provided basic conditions for the macro market to be bullish and bullish, collectively boosting the sustained rise in palm oil prices.

    According to monitoring data from Zhuochuang Information, as of September 30th, the CFR South China price reference for 24 degree palm oil is 1075 US dollars per ton, and the average offer price for the third quarter is 958 US dollars per ton, which is equivalent to an average import cost of 8197 yuan per ton in Chinese yuan. The continuous increase in import costs in the third quarter has led to a continued inversion of import profits in China, resulting in a lower willingness of domestic importers to buy ships. In August and September, there were fewer domestic ships arriving, and the inventory level at domestic ports was relatively low. As of the end of September, the inventory of 24 degree palm oil ports was 459000 tons, a year-on-year decrease of 27.49%. The tight supply in some areas supported the high spot basis.

    Positive trends coexist in the fourth quarter, palm oil may continue to rise

    In the fourth quarter, the supply and demand of palm oil in production areas may first loosen and then tighten.There is still pressure to increase palm oil production in October, and palm oil continues to accumulate inventory. At the end of October, the inventory in production areas may reach the highest point of the year, but it is still at a low level this year, providing market support. Starting from November, palm oil will enter the traditional production reduction season, and production may enter a downward trend. Overall, the pressure on palm oil supply in the fourth quarter may ease. In addition, in the fourth quarter, Indonesia's biodiesel is in the peak demand season, leading to an increase in palm oil consumption. As the Indonesian B40 plan approaches in early 2025, there are concerns in the market about a reduction in palm oil exports. The global supply and demand pattern for palm oil may further tighten, and local offers may maintain their upward trend.

    In the fourth quarter, domestic palm oil may have weak supply and demand, with low inventory levels.There have been frequent reports of ship washing in the early stage, and a small number of ships may arrive domestically in the fourth quarter, leading to a tightening of supply. With the decrease in temperature and the inversion of soybean and palm, the cost-effectiveness of palm oil has decreased, leading to a weakening of domestic palm oil demand and weak supply and demand. Port inventories may slowly recover and maintain a low level. However, the impact of domestic supply and demand on palm oil prices is limited, and spot palm oil prices may rise along with import costs. In addition, against the backdrop of the Federal Reserve's interest rate cut cycle, unstable situation in the Middle East, and domestic macroeconomic policy regulation, the macro market still holds positive momentum, which may boost palm oil prices.

    In summary, the low inventory at home and abroad provided support in the third quarter, and macro policies boosted the rise in palm oil prices. The supply and demand pattern may further tighten in the fourth quarter, and macro benefits coexist. Palm oil spot prices may continue to rise.

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