12.11.2020 (themalaysianreserve.com) - CRUDE palm oil (CPO) prices look set to remain high for the remainder of 2020 supported by concerns over tight global edible oil supplies and fears of the cyclical La Nina wet-weather pattern impact on output.

CPO prices rallied close to an eight-year high of RM3,349 a tonne yesterday on price bullish data from the Malaysian Palm Oil Board’s (MPOB) monthly statistics report on the country’s production, exports and stock levels.

For October, MPOB noted that palm oil stockpile fell to 8.6% month-on-month (MoM) to 1.57 million tonnes, the lowest in more than three years since June 2017. Production for the month contracted 7.8% MoM to 1.72 million tonnes, the lowest since May.

CGS-CIMB Securities Sdn Bhd head of Malaysia research and regional head of agribusiness research Ivy Ng raised her forecast of the average CPO price for the year to RM2,620 per tonne from RM2,500 per tonne previously.

“We expect CPO prices to trade in the range of RM2,600 and RM3,200 per tonne in November and raise our average CPO price to RM2,620 per tonne for 2020 forecast from RM2,500 per tonne given the stronger than expected CPO price achievement over the past month.

“Key factors influencing the prices are the La Nina impact on oilseeds and palm oil supplies, China’s purchases to build up its stock reserves and policies on biodiesel mandates,” she said.

The tight-supply fear heightens as global demand is expected to intensify as restocking activities for the festive seasons take place.

MPOB’s data showed that the palm oil export has been on the rise for the past two consecutive months, up 3.8% to RM1.67 million tonnes in October mainly due to stronger demand from India, Pakistan and the US.

Singapore-based Palm Oil Analytics owner and co-founder Dr Sathia Varqa said the lower export tax on CPO to 0% since June has benefitted palm oil producers in clearing out their stockpile and pushed for higher prices.

“Malaysian planters are currently benefitting from the better CPO pricing compared to Indonesia as the country has been mulling to increase its export levy for quite some time now and is likely to kick in soon to address the fast-depleting biodiesel fund,” he said.

The current dry weather phenomenon in Brazil, which threatens the supply of soybean production, is pushing the soyoil prices higher and, in turn, supporting CPO prices.

The government, meanwhile, is expecting to collect RM348 million from the windfall profit levy on palm oil in 2020 compared to the RM256,000 it made in 2019, said Plantation Industries and Commodities Minister Datuk Dr Mohd Khairuddin Aman Razali.

He said the projection was based on the performance, price expectations and production of fresh fruit bunches from estates throughout 2020.

The levy is imposed at a rate of 3% for palm oil prices exceeding RM2,500 per tonne in the peninsula and 1.5% for palm oil prices exceeding RM3,000 per tonne in Sabah and Sarawak.

Mohd Khairuddin said CPO prices are expected to continue rising above RM3,000 per tonne on positive market sentiment, declining palm oil stockpiles, and global economic and political developments towards the end of 2020.

“The CPO price is determined by the current demand. It jumped to RM3,424 per tonne on Nov 6, 2020 compared to its lowest level of RM2,021.50 per tonne on May 12, 2020, an increase of RM1,402.50 or 69.4%.

“In the effort to boost the industry’s earnings, the ministry is studying the overall structure of taxation and cessation of the plantation sector,” he said in a statement yesterday.

In a report titled “Pandemic Progress Check: APAC Corporates”, Fitch Ratings is expecting the benchmark CPO price to average at US$600 (RM2,477.70) per tonne in 2020 compared to US$514 per tonne in 2019 based on the tracking of La Nina weather pattern.

The price increase is expected to help raise the earnings of oil palm growers.

“The average price could be better than we expect if the La Nina weather pattern exacerbates dry conditions in the Americas, affecting soybean yields.

“The La Nina phenomenon could also lead to flooding in Indonesian and Malaysian plantations, affecting oil output. Labour shortage in Malaysia is another factor that could boost CPO prices,” it said.

https://themalaysianreserve.com/2020/11/12/dwindling-stocks-keep-cpo-prices-elevated/