The domestic market is witnessing a supply tightness due to lack of labour as migrant workers continue to go back to their home states.
Crude palm oil (CPO) is an edible oil extracted from the pulp of the fruit of oil palms. The colour of pulp is red. India is a net importer of crude palm oil from Malaysia and Indonesia, and Mumbai is one of the major trading centres. The peak production season in both countries is from October to December. Other producing countries include Nigeria and Columbia. It is different from kernel oil or coconut oil.
It is combined or mixed with coconut oil to make highly saturated vegetable fat, which is also used for cooking. It is also used in making biodiesel.
The largest derivatives market for CPO is Bursa Malaysian Derivatives. It's also traded heavily on MCX in India, where its delivery centre is in Mumbai. Its prices are affected mainly by demand and supply of cooking oils and oil seeds all over the world.
MCX CPO prices have traded higher in May as there was panic buying in the domestic market during the lockdown.
A depreciating rupee with respect to the dollar and the sharp rise and fall in global crude prices lent support to vegetable oil prices.
Moreover, the lockdown also raised concerns about supply tightness in the domestic markets. Furthermore, the demand scenario rose in the later weeks of May on hopes of easing of lockdown in some states.
As per Solvent Extraction Association of India (SEA), palm oil imports for November-February reported at 25,45,126 metric tonnes, lower by 18.33 percent compared to 30,70,466 metric tonnes of the previous month.
By May 31, MCX CPO futures closed at Rs 658.2 per kg, higher by 4.19 percent compared to Rs 631.7 per kg reported on April 30.
For the coming month, we expect MCX CPO futures to be bullish as rupee is forecasted to depreciate with respect to dollar on a longer duration, which could lead to lower imports.
Depreciation of rupee is projected to increase price disparity and reduce imports of palm oil.
The domestic market is witnessing the heat of the supply tightness due to lack of labour as migrant workers continue to go back to their home states.
Furthermore, global markets are ignoring the US-China trade tensions, local disputes in the United States as investors are optimistic about the recovery of the world's largest economy. But then, major upside in prices can be limited with higher palm oil production reported from Malaysia.
As per MPOB data, CPO production has been reported at 16,52,771 tonnes for April 2020, higher compared to 13,97,313 tonnes in the previous month.
Overall, we expect a bullish trend in MCX crude palm oil prices for the coming month.
(The author is Executive Director at Choice Broking.)Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.