KUALA LUMPUR (March 6): Palm oil’s price direction will be influenced by weather in North and South America and its impact on soybean production, according to Ling Ah Hong, director of GanlingConsult Malaysia.

* If drought in Argentina spreads to the U.S., affecting soybean planting, palm oil may see a less bearish scenario this year, Ling says in interview in Kuala Lumpur

* Palm prices seen averaging -13% y/y at RM2,400/ton this year if dry weather only affects Argentina, may collapse to RM2,200 in 2H as production in top palm growers increase

** If there is drought in U.S., damaging soybean crops, then prices may stay supported between RM2,400-RM2,600 and average at RM2,500 

* Increased rainfall in last 18 months will be good for palm oil and yields will continue to increase this year, Ling says

** Palm oil output in Indonesia, Malaysia to stay seasonally weak in 1Q; to gather pace in 2Q before peaking in 3Q-4Q

* Malaysia’s 2018 total output seen rising 3-4% y/y to ~20.7m tons, Indonesia’s production seen rising to 37m tons from 34m tons a year earlier

** “While there is not going to be a fantastic double digit growth in production, it is still a growth and will push production to record levels”: Ling

** Growth driven by crop friendly weather, which will help return palm oil production to pre-El Nino level

** Palm output also helped by new plantings that mature this year
 
* Palm oil stockpiles in Malaysia may see a slight drop in 1Q and be between 2.2-2.6m tons

** Inventories to increase from May-June level, may continue to rise and even hit 3m tons by Sept.-Oct. if demand does not pick up

** Indonesia’s inventories estimated well above 4m tons and may rise as production increases in 2H

* India may temporarily reduce palm oil imports in next 3-4 months after import tax increase

* China is not going all out to buy palm oil as they have plentiful domestic inventories, Ling says