Palm Oil: going cheap!

Palm oil prices have tapered down in recent months as the havoc in advanced economies has market participants curbing forecasts for demand in coming months. However, the La Nina effect has effectively limited the bearish spell in global palm oil markets. The term denotes the phenomenon of rains in the South Asian region which often hampers the harvest of palm oil in Malaysia and Indonesia; the two biggest producers of this commodity in the world. Any significant disruptions to harvest in this region could dwarf global supplies of palm oil. But, there are still plenty of reasons for a depressed price outlook. Industry reports highlight that Malaysias palm oil reserves constantly stand at the highest level in the past 22 months. Data released by the Malaysian Palm Oil Board also show that output towered over exports in October. This revelation alone was enough to take palm oil futures down from a recent seven-week high. Pakistan is direly affected by changes in the prices of palm oil. The local consumption of oil is roughly 33 million tons out of which approximately 26 million tons are imported while just 600,000-700,000 tons are produced locally. Out of the 23 million tons of edible items imported into the country, roughly 20 million tons are of palm oil. Many palm oil importers in the country are ruling out any large decline in the prices of palm oil. Industry, sources contend that the La Nina effect is seasonal and temporary; which is concurrent with a slowdown in palm oil imports by China; the biggest importer of the commodity in the world. However, the dynamics of the local edible oils industry may be about to change because of a completely different set of factors. As relations with India improve, the likelihood of improved trade ties appears to be increasing with each passing day. In the aftermath of declaring India as a most favoured nation, Pakistan may be able to import significant quantities of cotton seed oil from that country. Improved access to this substitute for palm oil could have far-reaching consequences for the international price of palm oil, as Pakistan is the third largest consumer of this commodity in the world. But, it is too early to believe that this is going to happen since you never know whats cooking between India and Pakistan.