KONTAN.CO.ID - KUALA LUMPUR. Palm oil prices will weaken further in the short term due to softer demand and "distress selling" by top producer Indonesia, commodities consultancy LMC International forecast on Tuesday.

Malaysia's benchmark crude palm oil prices rose to record highs earlier this year as Russia's invasion of Ukraine and a temporary export ban by Indonesia tightened global edible oil supply.

Despite lifting the ban, Indonesia's exports have not reverted to normal levels as the government required companies to sell a portion of output at home before issuing export permits, in a bid to control local cooking oil prices. This has led to a surge in stocks and a slump in prices.

Indonesia's domestic crude palm oil prices also suffered because of the immense oversupply and difficulties in restarting exports, said Julian McGill, LMC International's head of the Southeast Asia region at an industry conference.

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"You are going to see a weakness in prices as Indonesia becomes a truly distressed seller," McGill added.

Last week, Indonesia said it was considering removing the domestic sales requirement for palm oil exports because high inventories of the vegetable oil have been holding back a recovery of palm oil fruit prices.

Clear signs of reduced demand and upcoming peak production in Indonesia will further weigh on the market, he said.

"So you're having to work with the fact that there is more and more oil coming, how do you get rid of it. This is a disaster," he added.

When Indonesian exports return to normal levels, its palm oil supply will head to Malaysia, the second biggest palm oil producer, he said.

Editor: Yudho Winarto