Market Update 8th September 2022

After the long hot, dry summer in Europe, inflation has become the major talking point; many governments seem to be rolling out numerous strategies beyond increasing interest rates to curb inflation; will the market turn?

Add in energy shortages, and China’s continued rolling COVID lockdowns – economic activity is taking a definite hit. Many are betting on recession for most developed countries.

What does this uncertainty bring to the edible oil and coconut markets?

In the southern hemisphere, they are reaching peak crop season for Palm Oil.

Crude oil has fallen on the back of worries about recession, but also crude oil price caps are now being brought in. So lower crude oil coupled with peak season has been pushing Palm oil to lows not seen since 2021; it has a way to go from the low of April 2019 of just under $2,000 with prices currently around $3,500, but who knows?

However, with energy at such a premium, it could have to be argued that because of palm oils, use in biofuel is unlikely to fall to that level.

Malaysia is still reporting labour shortages, which could be another limiting factor. Coconut oil has tracked with other edible oils lower. But with inflation, energy shortage, and fertiliser shortages, we have seen the supply of vegetable oils constricted in Europe. Add in that dry, hot summer, and you can see that vegetable oils may not be able to fall too much further.

It is coming into typhoon season in the northwest pacific, and already, we have seen one typhoon turn north and force the closure of Yangshan port in the last week. It looks like another typhoon will hit Shanghai again next week. We watch and wait for the first to hit the Philippines.

With coconut oil now hovering below $1,300, the last time prices were this low was Q4 2020. Does it have any further to fall?

Desiccated prices are following a similar pattern, and at the same point in time in 2020, we saw strong sales for Q1 2021, and we are now seeing the same pattern in Q1 2023, with buyers keen to lock in these low prices for fear of missing out.

With typhoon season, whilst edible oils may weaken more, the balance of probability says there is a much higher chance of prices increasing.