MARKET DEVELOPMENT
Analysts See ‘Largely Neutral’ Impact of TPPA for Plantation Sector
Analysts See ‘Largely Neutral’ Impact of TPPA for Plantation Sector
29/01/2016 (Borneo Post) - The Trans-Pacific Partnership Agreement’s (TPPA) impact would likely only be felt as early as 2018 but analysts believe that its impact will be largely neutral on Malaysia’s plantation sector.
In a report, the research arm of Public Investment Bank Bhd (PublicInvest Research) said it concurs with PwC’s studies, which reveal that it is unlikely to post significant benefit to Malaysian palm oil exports if Malaysia were to join the TPPA.
“Currently, Malaysia has Free Trade Agreements with eight of the 12 TPPA countries except US, Canada, Mexico and Peru, which collectively only made up four per cent of our crude palm oil (CPO) exports in 2015.
“The reasons for the low palm oil imports are Mexico and Peru would prefer to import palm oil from neighbouring country like Columbia due to logistics and shipping cost advantage, Canada is a heavy producer of canola oil and US, which imported 703,482 metric tonnes or four per cent from Malaysia in 2015, has a large variety of domestic edible oil production such as soybean and corn oils,” it explained.
Meanwhile, PublicInvest Research said that CPO prices have touched RM2,305 per metric tonne, rising more than 4.8 per cent year to date, supported by stronger US dollar and concerns over supply risk.
“MPOB projects Malaysia’s CPO production will increase marginally by 0.7 per cent to 20.1 million metric tonnes this year vs 19.96 million metric tonnes in 2015.
Meanwhile, Indonesia’s Palm Oil Association sees Indonesia palm oil production will rise from 32.5 million metric tonnes to 33 million to 35 million metric tonnes this year.
“On the global palm oil production, Oil World expects global CPO production will rise only by 0.6 million metric tonnes, below the annual average of 2.7 million metric tonnes,” it added.
Aside from that, the research team believes that the plans for biodiesel will not likely be successful.
To recap, Indonesia has set a biodiesel mandate of 20 per cent in 2016 (up from 15 per cent) while Malaysia plans a 10 per cent blending target, up from seven per cent last year.
“The new biodiesel mandates are aimed at using up to 3.4 million metric tonnes of CPO in Indonesia (consumed 0.64 million metric tonnes in 2015) and one million metric tonnes in Malaysia.
“However, we doubt it is a viable target with crude oil prices plunging to 12-year lows. At current prices, the spread between gasoline and biodiesel has expanded to US$380 per metric tonne, which is only sufficient to fund about 1.8 million metric tonnes of biodiesel in Indonesia based on the annual collection of US$700 million from the CPO export levy. To achieve the required target, we estimate that it needs at least US$1.3 billion,” it opined.
Overall, PublicInvest Research retained its ‘overweight’ call on the sector with an average CPO price forecast of RM2,500 per metric tonne for this year.
In a report, the research arm of Public Investment Bank Bhd (PublicInvest Research) said it concurs with PwC’s studies, which reveal that it is unlikely to post significant benefit to Malaysian palm oil exports if Malaysia were to join the TPPA.
“Currently, Malaysia has Free Trade Agreements with eight of the 12 TPPA countries except US, Canada, Mexico and Peru, which collectively only made up four per cent of our crude palm oil (CPO) exports in 2015.
“The reasons for the low palm oil imports are Mexico and Peru would prefer to import palm oil from neighbouring country like Columbia due to logistics and shipping cost advantage, Canada is a heavy producer of canola oil and US, which imported 703,482 metric tonnes or four per cent from Malaysia in 2015, has a large variety of domestic edible oil production such as soybean and corn oils,” it explained.
Meanwhile, PublicInvest Research said that CPO prices have touched RM2,305 per metric tonne, rising more than 4.8 per cent year to date, supported by stronger US dollar and concerns over supply risk.
“MPOB projects Malaysia’s CPO production will increase marginally by 0.7 per cent to 20.1 million metric tonnes this year vs 19.96 million metric tonnes in 2015.
Meanwhile, Indonesia’s Palm Oil Association sees Indonesia palm oil production will rise from 32.5 million metric tonnes to 33 million to 35 million metric tonnes this year.
“On the global palm oil production, Oil World expects global CPO production will rise only by 0.6 million metric tonnes, below the annual average of 2.7 million metric tonnes,” it added.
Aside from that, the research team believes that the plans for biodiesel will not likely be successful.
To recap, Indonesia has set a biodiesel mandate of 20 per cent in 2016 (up from 15 per cent) while Malaysia plans a 10 per cent blending target, up from seven per cent last year.
“The new biodiesel mandates are aimed at using up to 3.4 million metric tonnes of CPO in Indonesia (consumed 0.64 million metric tonnes in 2015) and one million metric tonnes in Malaysia.
“However, we doubt it is a viable target with crude oil prices plunging to 12-year lows. At current prices, the spread between gasoline and biodiesel has expanded to US$380 per metric tonne, which is only sufficient to fund about 1.8 million metric tonnes of biodiesel in Indonesia based on the annual collection of US$700 million from the CPO export levy. To achieve the required target, we estimate that it needs at least US$1.3 billion,” it opined.
Overall, PublicInvest Research retained its ‘overweight’ call on the sector with an average CPO price forecast of RM2,500 per metric tonne for this year.