MARKET DEVELOPMENT
Biodiesel Sector To Be CPO Market Catalyst Next Year
Biodiesel Sector To Be CPO Market Catalyst Next Year
01/01/2014 (Bernama) - The demand for crude palm oil (CPO) is expected to be resilient next year with the help from the biodiesel sector following the government's biodiesel five per cent blend (B5) programme, with price to average RM2,600 a tonne.
The programme, which involves a blend of five per cent palm oil-based biodiesel and 95 per cent petroleum-based diesel, is expected to slash CPO inventory levels by 500,000 tonnes a year.
Phillip Futures Derivative Sdn Bhd Dealer, David Ng, said there has been a concerted effort from CPO's largest producers, Indonesia and Malaysia, to establish renewable mandates for biodiesel as a measure to curb fuel imports.
"On the local front, we are looking at full nationwide implementation of biodiesel B5 programme by March 2014, potentially generating additional demand and providing a floor price for CPO," he told Bernama.
He said Phillip Futures Derivative has projected CPO prices to continue their upward bias until the second quarter next year in light of tighter supplies and better demand in the market.
"However, as we move towards the second half of next year, the prices will trade on a low range between RM2,600 and RM 2,400 in view of additional supplies in the market which will raise the stock level in the country," he said.
Ng said the narrowing of palm oil and soyaoil spread could be a short-term concern as the consumers from China may opt for its rival, soyabean, when prices are attractive.
On the supply side, he said, production for both Malaysia and Indonesia will most likely be on the high side and will potentially weigh on prices.
However, he said, the additional biodiesel demand could absorb the excess supply, thus balancing stock level in the market.
The government, in realising the significant importance of the plantation sector to the economy, has identified the CPO and rubber under its National Key Economic Areas to strengthen the industries to deliver RM230.9 billion in gross national income by 2020, to be achieved through eight Entry Point Projects.
Ng said based on recent Economic Transformation Programme's annual report, most measures have recorded successful results.
"We have seen replanting efforts still on-going to replenish ageing trees in the country in hope to generate an overall higher yield for the country, whereby the area above 25 years old has now been reduced from 7.49 per cent in 2008 to 7.15 per cent of total planted area in 2012, which showed a marked decline.
"Furthermore, oil extraction rate in the country also witnessed improvement in the numbers reflecting efforts by government to boost yield levels," he said.
One of exciting issues for the CPO sector next year would be the establishment of the Malaysian Sustainable Palm Oil, the country's own sustainable palm oil standard.
Ng said the introduction of local standards, on top of the existing international sustainability framework designed by the Roundtable on Sustainable Palm Oil, would enhance the industry's sustainability standards.
"However, successful implementation of such standard will greatly depend on participation from palm oil producers," he said.
For 2013, he said, it is a volatile year for CPO, with prices moving between RM2,200 and RM2,700.
However, he said, the prices picked up towards year-end in view of tighter supply due to low seasonal production in the fourth quarter.
He said the current prices have established a new trading range due to better fundamentals moving forward, however, the market would still be cautious amid external market uncertainties.
"Ongoing research and development conducted under the purview of the Malaysian Palm Oil Board is vital to maintain and generate higher yield in the palm oil industry.
"We believe technology and innovation holds the key to success in this industry," he said.
At the close of the last trading day for the year, CPO futures contracts months January and February 2014 each closed RM25 higher at RM2,628 a tonne and RM2,649 a tonne, respectively, while March and April 2014 were both RM28 higher at RM2,659 and RM2,662, respectively.
Turnover rose to 17,336 lots from Monday's 9,980 lots while open interest increased to 165,652 contracts from 164,766 contracts previously.
On the physical market, January South was unchanged at RM2,630 per tonne.
The programme, which involves a blend of five per cent palm oil-based biodiesel and 95 per cent petroleum-based diesel, is expected to slash CPO inventory levels by 500,000 tonnes a year.
Phillip Futures Derivative Sdn Bhd Dealer, David Ng, said there has been a concerted effort from CPO's largest producers, Indonesia and Malaysia, to establish renewable mandates for biodiesel as a measure to curb fuel imports.
"On the local front, we are looking at full nationwide implementation of biodiesel B5 programme by March 2014, potentially generating additional demand and providing a floor price for CPO," he told Bernama.
He said Phillip Futures Derivative has projected CPO prices to continue their upward bias until the second quarter next year in light of tighter supplies and better demand in the market.
"However, as we move towards the second half of next year, the prices will trade on a low range between RM2,600 and RM 2,400 in view of additional supplies in the market which will raise the stock level in the country," he said.
Ng said the narrowing of palm oil and soyaoil spread could be a short-term concern as the consumers from China may opt for its rival, soyabean, when prices are attractive.
On the supply side, he said, production for both Malaysia and Indonesia will most likely be on the high side and will potentially weigh on prices.
However, he said, the additional biodiesel demand could absorb the excess supply, thus balancing stock level in the market.
The government, in realising the significant importance of the plantation sector to the economy, has identified the CPO and rubber under its National Key Economic Areas to strengthen the industries to deliver RM230.9 billion in gross national income by 2020, to be achieved through eight Entry Point Projects.
Ng said based on recent Economic Transformation Programme's annual report, most measures have recorded successful results.
"We have seen replanting efforts still on-going to replenish ageing trees in the country in hope to generate an overall higher yield for the country, whereby the area above 25 years old has now been reduced from 7.49 per cent in 2008 to 7.15 per cent of total planted area in 2012, which showed a marked decline.
"Furthermore, oil extraction rate in the country also witnessed improvement in the numbers reflecting efforts by government to boost yield levels," he said.
One of exciting issues for the CPO sector next year would be the establishment of the Malaysian Sustainable Palm Oil, the country's own sustainable palm oil standard.
Ng said the introduction of local standards, on top of the existing international sustainability framework designed by the Roundtable on Sustainable Palm Oil, would enhance the industry's sustainability standards.
"However, successful implementation of such standard will greatly depend on participation from palm oil producers," he said.
For 2013, he said, it is a volatile year for CPO, with prices moving between RM2,200 and RM2,700.
However, he said, the prices picked up towards year-end in view of tighter supply due to low seasonal production in the fourth quarter.
He said the current prices have established a new trading range due to better fundamentals moving forward, however, the market would still be cautious amid external market uncertainties.
"Ongoing research and development conducted under the purview of the Malaysian Palm Oil Board is vital to maintain and generate higher yield in the palm oil industry.
"We believe technology and innovation holds the key to success in this industry," he said.
At the close of the last trading day for the year, CPO futures contracts months January and February 2014 each closed RM25 higher at RM2,628 a tonne and RM2,649 a tonne, respectively, while March and April 2014 were both RM28 higher at RM2,659 and RM2,662, respectively.
Turnover rose to 17,336 lots from Monday's 9,980 lots while open interest increased to 165,652 contracts from 164,766 contracts previously.
On the physical market, January South was unchanged at RM2,630 per tonne.