MARKET DEVELOPMENT
Experts: CPO Rally Likely Short-Lived
Experts: CPO Rally Likely Short-Lived
14/10/2016 (The Star) - The rally in crude palm oil (CPO) prices is likely to be temporary due to an expected strong pick-up in production next year.
Leading experts in the plantation sector agreed that the incoming palm oil output surge would cap the upside of CPO prices.
“Production is going to recover with a significant increase from April 2017.
“However, over the next three to six weeks, prices may hit RM3,000 per tonne due to rising import demand over the short term,” industry analyst Thomas Mielke said at the Malaysia Palm Oil Trade Fair and Seminar here yesterday.
With edible oil demand typically picking up ahead of the Diwali festive season, some countries are still short on physical stocks, which will spur prices during the last quarter of the year, according to Mielke.
Mielke, who is the editor of the industry newsletter Oil World, predicted Malaysia to record a total palm oil output of 20.5 million tonnes in 2017, compared with 17.8 million tonnes this year.
Despite inventory falling steeply throughout this year partly due to the El Nino weather phenomenon, the rise in CPO prices had underwhelmed initial expectations, according to the experts.
“Previously, planters would cheer a fall in production, as it would be offset by the rise in prices.
“However, the situation is the opposite now. You see a 20% fall in production but only a 10% price rise,” said industry expert Dorab Mistry, who is a director of Godrej International Ltd.
Having previously forecast that prices would trade at between RM3,000 and RM3,200 due to the production shortfall, Mistry said that China’s release of its rapeseed oil reserves played a major factor in curbing demand from the world’s second-biggest palm oil consumer.
Additionally, new incoming supply of palm oil stocks would continue to dampen prices further, he said.
“We must be prepared to see a strong and dramatic rise in production next year,” said Mistry, adding that he expected CPO prices to touch down to RM2,200 per tonne by next year.
LMC International Ltd chairman Dr James Fry said that CPO prices would ease to between RM2,400 and RM2,450 per tonne in November and December before rebounding during the seasonally lower production months of January and February.
Fry said the expected bumper production next year would nearly offset the entire shortfall in output that was seen during the first half of this year.
“However, prices will fall further to RM2,100 in the second half of 2017. South-East Asian palm oil output and stocks will surge as El Nino’s impact vanishes,” he said.
According to Malaysian Palm Oil Board data, physical settlement prices for CPO dropped to RM2,650 per tonne on Oct 12, as Malaysia recorded lower exports during the first two weeks of the month. CPO price hit RM2,899.50 on Sept 21 – the highest in more than two years.
Leading experts in the plantation sector agreed that the incoming palm oil output surge would cap the upside of CPO prices.
“Production is going to recover with a significant increase from April 2017.
“However, over the next three to six weeks, prices may hit RM3,000 per tonne due to rising import demand over the short term,” industry analyst Thomas Mielke said at the Malaysia Palm Oil Trade Fair and Seminar here yesterday.
With edible oil demand typically picking up ahead of the Diwali festive season, some countries are still short on physical stocks, which will spur prices during the last quarter of the year, according to Mielke.
Mielke, who is the editor of the industry newsletter Oil World, predicted Malaysia to record a total palm oil output of 20.5 million tonnes in 2017, compared with 17.8 million tonnes this year.
Despite inventory falling steeply throughout this year partly due to the El Nino weather phenomenon, the rise in CPO prices had underwhelmed initial expectations, according to the experts.
“Previously, planters would cheer a fall in production, as it would be offset by the rise in prices.
“However, the situation is the opposite now. You see a 20% fall in production but only a 10% price rise,” said industry expert Dorab Mistry, who is a director of Godrej International Ltd.
Having previously forecast that prices would trade at between RM3,000 and RM3,200 due to the production shortfall, Mistry said that China’s release of its rapeseed oil reserves played a major factor in curbing demand from the world’s second-biggest palm oil consumer.
Additionally, new incoming supply of palm oil stocks would continue to dampen prices further, he said.
“We must be prepared to see a strong and dramatic rise in production next year,” said Mistry, adding that he expected CPO prices to touch down to RM2,200 per tonne by next year.
LMC International Ltd chairman Dr James Fry said that CPO prices would ease to between RM2,400 and RM2,450 per tonne in November and December before rebounding during the seasonally lower production months of January and February.
Fry said the expected bumper production next year would nearly offset the entire shortfall in output that was seen during the first half of this year.
“However, prices will fall further to RM2,100 in the second half of 2017. South-East Asian palm oil output and stocks will surge as El Nino’s impact vanishes,” he said.
According to Malaysian Palm Oil Board data, physical settlement prices for CPO dropped to RM2,650 per tonne on Oct 12, as Malaysia recorded lower exports during the first two weeks of the month. CPO price hit RM2,899.50 on Sept 21 – the highest in more than two years.