21/02/2012 (Borneo Post) - Crude Palm Oil (CPO) price is foreseen to trend higher given that production growth is expected to decline from 9.4 per cent in 2011 to 5.4 per cent in 2012.

UOB Kay Hian (Malaysia) Holdings Sdn Bhd (UOBKayHian) in its latest reports stated it could further decline to 3.4 per cent in 2012 after a good 12 months of palm oil production because oil palm trees were entering the three-year biologicval stress period.

There were also less new areas coming into maturity than in previous years. It further pointed that new areas had been trending down due to stringent environmental regulations and the two-year moratorium between the Indonesia and Norwegian governments.

“We are expecting a stable demand growth in 2012, followed by a higher growth in 2013.

“Stable demand growth in 2012 of 5.7 per cent is expected to be supported by increasing demand from emerging countries such as China, India, Indonesia and Africa on improving household income and urbanisation,” it stated.

Besides the increased in demand from emerging countries, sharp demand growth in 2013 of 7.2 per cent was also supported by the recovery in the global economy. UOB Kay Hian expected demand growth to outstrip supply growth by 2013.

“CPO price is negatively correlated with investory level.

“We expect the inventory level in Malaysia to start declining from two million tonnes to between 1.7 million and 1.8 million tonnes by May.June 2012,” it stated.

By end of the second quarter of 2012 or early third quarter, CPO price should start to rise, it said.

It maintained its bullish price assumptions of RM3,150 per tonne and RM3,400 per tonne for 2012 and 2013, up from RM2,700 per tonne, during its last forecast.

“Our upward CPO price adjustment mainly reflects the rise in soybean oil price to between US$1,100 and RM1,200 per tonne in 2012-2012 on tighter supply,” it concluded.