Balance Sheet- Global

Source- MPOB, USDA and KCTL BAW
 
  • For 2017-18 season, global palm oil production is estimated to rise by 6.7% Y/Y to 66.86 million MTs backed by rise in production at two major producing nations such as Malaysia and Indonesia and both these countries together contribute for more than 80% of the global output
  • Palm oil production in Indonesia and Malaysia is expected to increase by 18% and 6% Y/Y owing to higher acreage and absence of El Nino, which boosted the yield level
  • Global exports are set to rise in 2017-18 by 2.4% Y/Y on rise in Malaysian exports, which is going up by 7.2% Y/Y
  • With expected rise in production, prices are anticipated to trade lower thereby boosting demand from importing nations
  • India is likely to continue to remain the top importer of palm oil during 2017-18
  • Lower prices of crude palm oil futures amid forecast of normal monsoon in India may keep its domestic oilseeds supplies in the country at adequate level
 
 
Balance Sheet-India
 
Source-USDA and KCTL BAW
 
  • Palm Oil supplies for 2016-17 oil year is estimated to rise by 4.3% Y/Y on back of higher imports amid lower prices and rise in production in source nations
  • Indian palm oil imports are likely to increase by 10% for the year 2016-17 Y/Y because of cheaper supplies and lower beginning stocks
  • Moreover, lower export taxation at source nations and unchanged import duty at the domestic front is likely to continue supporting higher import into the country
  • Meanwhile, domestic consumption is rising moderately by 2.7% Y/Y on rising population
  • The ending stock is expected to rise as surge in production at source nations amid higher imports of crude palm oil

Price Movement

 
  • During the AMJ 2017 quarter, CPO futures on MCX were on bearish trend on higher supplies from the import as well as tracking weakness in its rival RSO market
  • However, in the month of May 2017, the market witnessed a positive trend taking cues from CBOT soy oil market
  • The speculation regarding curb on bio-fuel imports from Argentina and Indonesia pushed soy oil futures higher
  • Meanwhile, at BMD CPO futures traded on a broad range for most part of the previous AMJ quarter.
  • Since 3rd April’17 CPO futures at BMD have risen by 1.8% to MYR 2604/MT on 21st July’17
  • Improving production scenario in Malaysia and Indonesia restricted the prices to move up
 

CPO imports in MT

  • In the oil year 2015-16 (Nov-Oct),had imported 5.75 million MTs of CPO
  • During first 8-months of current oil year i.e., 2016-17, total CPO imports are around 3.97 million MTs, up by 5.3% Y/Y
  • Cheaper prices along with reduction in export duty at source nations supported rise in imports of the country
  • Since Feb’17, Y/Y crude palm oil imports have been increasing till the latest data available i.e., June’17.
  • Malaysian customs department has reduced the export duty on crude palm oil for Aug’17 to 5.5% from 7.5% in April’17
  • Meanwhile, Indonesia has continued to keep its crude palm oil export levy at $0/MT
 

RBD Palmolein imports in MT

 

  • The import of RBD Palmolein in oil year 2015-16 was 2.62 million MTs
  • In the oil year 2016-17 from Nov’16-June’17, RBD Palmolein imports were around 1.9 million MTs ,up by 7.2%.
  • The declining difference between CPO and RBD Palmolein FOB prices is boosting more imports of the latter
  • Moreover, nil export duty on RBD Palmolein by source nations along with declining FOB rates is making it more attractive to the importers
 

RBD Palmolein and CPO difference (USD/MT)

 
  • The spread between RBD Palmolein and CPO CIF rates in $/MT had (RBD-CPO) narrowed throughout the 2015-16 oil year
  • In the current oil year i.e., 2016-17, the spread has hovered in the negative territory for most part of the year
  • The narrowing spread between RBD Palmolein and CPO CIF rates, is encouraging higher former imports in the country
 

Fundamental Outlook-Bearish

MCX Crude Palm Oil futures are expected to trade on a negative note in the medium term. The major factors are:-
 
  • The supply of palm oil both CPO and RBD Palmolein will be at peak in the medium term as the August and September months coincides with peak harvesting season as per production seasonality
  • The ongoing period is lean season period for Kharif oilseed crops in terms of its arrivals. It may result in higher dependency on imported edible oil including palm oil.
  • Being cheapest edible oil available in the domestic market, CPO may attract higher demand, which would result into higher import
  • Forecast of normal south-west monsoon for 2017 is expected to be favourbale for the Kharif crops including oilseed which may keep the overall edible oil and oilseed market on leash in the medium term
  • The export duty on crude palm oil exports have been reduced by the source countries which may boost its supplies in the domestic market
  • BMD Crude palm oil futures are projected to trade on a negative note on surging output and inventories in Malaysia and Indonesia. With positive correlation between BMD and MCX CPO futures, bearish movement in the overseas market may get reflected on the latter prices.
 
Risk- The rise in import duty by Central Govt. may result in surge in prices
 

Technical Outlook- Bearish

• During the January 2017, price made high of 591 levels and afterwards it’s slipped around 13%.
• Last couple of weeks it was trading in a tight range.
• During June month price broke trend line resistance and successively trade below this level and we assume that price may recover from current level and touch the long term moving average at 498 level. It provides again sell on rise opportunity for short to medium term.
• Stochastic indicator trade near to oversold zone in weekly chart at 20 levels which may pull back price but we expect further weakness in underlying commodity on board.
 
Note: Recommendation is in Aug contract while executing trade in next available contracts levels to be adjusted based in premium/discount price to the Aug contract 

Recommendation

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The report contains the opinions of the author that are not to be construed as investment advice. The author, directors and other employees of Karvy, and its affiliates, cannot be held responsible for the accuracy of the information presented herein or for the results of the positions taken based on the opinions expressed above. The above-mentioned opinions are based on the information which is believed to be accurate and no assurance can be given for the accuracy of this information. There is risk of loss in trading in derivatives. The author, directors and other employees of Karvy and its affiliates cannot be held responsible for any losses in trading.

Commodity derivatives trading involve substantial risk. The valuation of the underlying may fluctuate, and as a result, clients may lose their entire original investment. In no event should the content of this research report be construed as an express or an implied promise, guarantee or implication by, or from, Karvy Comtrade that you will profit or that losses can, or will be, limited in any manner whatsoever. Past results are no indication of future performance. The information provided in this report is intended solely for informative purposes and is obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted

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Posted by Content Publisher Saturday, August 19, 2017 1:55:00 AM Categories: Medium Term Report

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