MARKET DEVELOPMENT
Ringgit Cheer For CPO
Ringgit Cheer For CPO
01/10/2015 (The Star) - The weaker ringgit is beginning to have a positive effect on crude palm oil (CPO).
The commodity has eased into comfortable levels of between RM2,300 and RM2,400 per tonne, after having plunged to a 6½-year low of RM1,863 per tonne a month ago.
CPO futures have increased by over 25%, with the three-month benchmark December contract closing marginally lower at RM2,375 per tonne yesterday.
Apart from the weak ringgit, positive factors which are creating excitement in the CPO market right now include the strengthening El Nino, the attractive CPO price discount at US$170-US$180 per tonne to soybean, and India poised to make an all-time record import of up to 10 million tonnes of CPO this year, according to palm oil experts.
Both local and international palm oil experts are predicting that CPO prices could even touch the RM2,500-per-tonne mark should the ringgit continue to weaken against the US dollar and a strong rebound in crude oil prices to US$50-US$60 per barrel materialises.
Industry expert M.R. Chandran, who expects the current CPO rally to be short-lived and to last up till December, said plantation companies certainly had a lot to cheer for as CPO was trading above RM2,400 per tonne.
The CPO price was much higher than the average CPO price of RM2,378 in 2014 and RM2,370 per tonne in 2013.
Local plantation companies have the cost of production advantage, which is in ringgit.
“A stronger US dollar against a weaker ringgit normally would result in higher translated local revenue and profits for these planters who report their earnings in ringgit, as their CPO exports are traded in US dollar globally,” explained Chandran.
“Furthermore, the bulk of these planters’ cost of production, about 60% to 70%, is mostly in their local currencies,” he added.
To date, the average cost of production among efficient planters in Peninsular Malaysia is RM1,300 to RM1,400 per tonne.
Chandran expects CPO futures to stay at the RM2,350-RM2,400 per tonne range within these few months, but “it will touch a peak of RM2,500 per tonne, given the speculation and active hedging activities in the market”.
Bloomberg reported that international palm oil trader Dorab Mistry of Godrej Industries also expected palm oil to extend its bull market climb should the ringgit retreat further against the US dollar.
Palm oil touched RM2,460 per tonne on Tuesday, the highest since June 2014 as the ringgit dropped against the greenback, making the world’s most-used edible oil cheaper for international buyers.
Mistry told the Globoil Conference in Mumbai yesterday that the benchmark CPO futures would probably trade at the upper end of a RM2,100-RM2,400 per tonne range if the ringgit were to fall to US$4.50.
Prices could then touch RM2,500 a tonne, he said. The ringgit is currently trading at about 4.44 to the dollar after having dropped to 4.4812 on Tuesday, the lowest since 1998.
“It is possible to go to RM2,500 just for a short time,” added Mistry. His price forecast assumes Brent crude trading between US$45 and US$60 a barrel. Still, “such a level is not sustainable unless mineral oil prices rise significantly”, he said.
Meanwhile, Affin Hwang Investment Bank Bhd believes that the worst is over for CPO “unless the global economic outlook deteriorates further”.
The research unit expects a moderate 12% rise in CPO prices for 2016. “We expect CPO prices to firm from an average of RM2,150 per tonne in 2015 to RM2,400 per tonne in 2016-2017 estimates.
“We see a number of positives, including a strengthening El Nino impacting CPO production, price stabilisation measures to be announced, and a pick-up in global economic growth in 2016-2017,” it added.
While the palm oil inventory in absolute terms is still expected to rise, it pointed out that the stock-to-export ratio was still manageable at 1.6 months.
Malaysia and Indonesia will be meeting this month to formulate measures to stabilise the price of CPO.
The commodity has eased into comfortable levels of between RM2,300 and RM2,400 per tonne, after having plunged to a 6½-year low of RM1,863 per tonne a month ago.
CPO futures have increased by over 25%, with the three-month benchmark December contract closing marginally lower at RM2,375 per tonne yesterday.
Apart from the weak ringgit, positive factors which are creating excitement in the CPO market right now include the strengthening El Nino, the attractive CPO price discount at US$170-US$180 per tonne to soybean, and India poised to make an all-time record import of up to 10 million tonnes of CPO this year, according to palm oil experts.
Both local and international palm oil experts are predicting that CPO prices could even touch the RM2,500-per-tonne mark should the ringgit continue to weaken against the US dollar and a strong rebound in crude oil prices to US$50-US$60 per barrel materialises.
Industry expert M.R. Chandran, who expects the current CPO rally to be short-lived and to last up till December, said plantation companies certainly had a lot to cheer for as CPO was trading above RM2,400 per tonne.
The CPO price was much higher than the average CPO price of RM2,378 in 2014 and RM2,370 per tonne in 2013.
Local plantation companies have the cost of production advantage, which is in ringgit.
“A stronger US dollar against a weaker ringgit normally would result in higher translated local revenue and profits for these planters who report their earnings in ringgit, as their CPO exports are traded in US dollar globally,” explained Chandran.
“Furthermore, the bulk of these planters’ cost of production, about 60% to 70%, is mostly in their local currencies,” he added.
To date, the average cost of production among efficient planters in Peninsular Malaysia is RM1,300 to RM1,400 per tonne.
Chandran expects CPO futures to stay at the RM2,350-RM2,400 per tonne range within these few months, but “it will touch a peak of RM2,500 per tonne, given the speculation and active hedging activities in the market”.
Bloomberg reported that international palm oil trader Dorab Mistry of Godrej Industries also expected palm oil to extend its bull market climb should the ringgit retreat further against the US dollar.
Palm oil touched RM2,460 per tonne on Tuesday, the highest since June 2014 as the ringgit dropped against the greenback, making the world’s most-used edible oil cheaper for international buyers.
Mistry told the Globoil Conference in Mumbai yesterday that the benchmark CPO futures would probably trade at the upper end of a RM2,100-RM2,400 per tonne range if the ringgit were to fall to US$4.50.
Prices could then touch RM2,500 a tonne, he said. The ringgit is currently trading at about 4.44 to the dollar after having dropped to 4.4812 on Tuesday, the lowest since 1998.
“It is possible to go to RM2,500 just for a short time,” added Mistry. His price forecast assumes Brent crude trading between US$45 and US$60 a barrel. Still, “such a level is not sustainable unless mineral oil prices rise significantly”, he said.
Meanwhile, Affin Hwang Investment Bank Bhd believes that the worst is over for CPO “unless the global economic outlook deteriorates further”.
The research unit expects a moderate 12% rise in CPO prices for 2016. “We expect CPO prices to firm from an average of RM2,150 per tonne in 2015 to RM2,400 per tonne in 2016-2017 estimates.
“We see a number of positives, including a strengthening El Nino impacting CPO production, price stabilisation measures to be announced, and a pick-up in global economic growth in 2016-2017,” it added.
While the palm oil inventory in absolute terms is still expected to rise, it pointed out that the stock-to-export ratio was still manageable at 1.6 months.
Malaysia and Indonesia will be meeting this month to formulate measures to stabilise the price of CPO.