28.03.2023 (The Star) - PETALING JAYA: Crude palm oil (CPO) may be susceptible to a shortage in the US dollars globally if the US banking crisis uncertainty prolongs, says Maybank Investment Bank (Maybank IB) Research.

This hypothetical situation, should it come true, could impede global trade and drive down commodity prices, including the CPO price, it added.

Although CPO accounted for about one-third of global oil and fat production last year, Maybank IB Research said its share of global exports is much higher at around 54%.

“This makes CPO more susceptible to the US dollar shortage compared to other edible oils.

“Even prior to this banking crisis, several importing countries were already short of the dollar – Sri Lanka, Pakistan, Bangladesh and some African countries, to name a few,” said the research house in its latest report.

“If the central banks in the West fail to arrest the banking crisis, the rest of the world may be indirectly impacted too,” it noted.

On the price forecasts, Maybank IB Research said the price of CPO was no longer as price competitive compared to before.

It noted the price trend for CPO was now in line with its expectations of a weaker CPO price ahead on seasonal output recovery from mid-year.

The CPO price had also seen corrections as soybean oil and rapeseed oil had fallen in the last one to three months.

“The CPO price has significantly narrowed its discounts to other major competing oils, especially rapeseed oil in Germany, whereby the discount has narrowed to just US$73 (RM323) per tonne, lower than the historical average of US$322 (RM1,470) per tonne.

“We expect the CPO price to stay volatile in the near term,” it added.

Maybank IB Research also continued to be “neutral” on the sector, premised on the assumption that central banks will learn from the past to take pre-emptive measures to avert another global financial crisis (GFC) as in 2008.

It said the dollar continued to remain the main currency globally, even though its role as the official foreign-exchange (forex) reserve for countries has lessened over the years.

“It remains the primary reserve currency of the world, accounting for more than 50% of official reserves. The US dollar is also the dominant currency in the global forex markets with a nearly 90% market share,” Maybank IB Research said.

“Nearly 50% of global trade is invoiced in the US dollar. Given the currency’s dominance in global trade, a shortage of the dollar will likely be detrimental to imports and exports as evidenced by the 2007-2008 GFC period,” the research house said.

It noted that during that period, non-US banks abruptly found themselves short of the US dollar when US financial firms were unwilling to lend dollars to their foreign counterparts.

According to the “Global Financial Stability Report” by the International Monetary Fund, non-US banks’ US dollar assets continued to rise post-GFC to US$12.4 trillion (RM55 trillion) by mid-2018, and this causes global banks to be vulnerable to such disruptions.

https://www.thestar.com.my/business/business-news/2023/03/28/cpo-showing-tied-tous-dollar-movement