MARKET DEVELOPMENT
High palm oil prices starting to affect demand
High palm oil prices starting to affect demand
4/7/07 (The Edge Daily) - This year's rally in crude palm oil (CPO) prices to record high levels has started to affect demand, leading to a sharp fall in June exports as buyers switch to cheaper South American soyoil, which was trading below palm oil prices for the past few months.
After the recent correction, palm oil's premium over South American soyoil has been sharply reduced, from well over US$100 (RM345) per tonne in early June 2007 to almost parity at present. On June 28, 2007, RBD Palm was trading at US$750 per tonne, compared with US$760 per tonne for Argentina soyoil, according to Oil World statistics.
As we enter into the peak production months, we expect palm oil prices to stay range-bound in the near term, unless there is a significant rally in soyoil.
Soybean and soyoil prices have been struggling recently due to favourable weather conditions in the US mid-west. However, soybean and soyoil prices rallied sharply last Friday after the latest USDA acreage report revealed that more acres were planted to corn, at the expense of soybean, due to strong export demand for corn and domestic ethanol consumption.
Sliding palm oil prices
CPO prices rallied to record highs of over RM2,700 per tonne in early June 2007. Since then, prices have been on a downward slide, falling to below RM2,300 per tonne and then rebounding to around RM2,450 per tonne at the time of writing.
The earlier rally in CPO prices was fuelled by falling end-stocks due to rising demand. Exports rose sharply in March-May 2007 as Chinese and Indian buyers that previously held back purchases scrambled instead to buy palm oil amid fears of further price hikes. As a result, end stocks for palm oil fell to a three-year low of 1.18 million tonnes in May 2007.
However, the sharp rise in CPO prices has since made it much less affordable, especially with soyoil prices not moving in tandem and the ringgit appreciating sharply. Indeed, palm oil prices traditionally trade at a large discount of US$50-US$120 per tonne to soyoil (which is generally considered a premium oil), but that reversed into a premium instead over the past few months.
Exports fall in June
Palm oil's premium over South American soyoil expanded to over US$100 per tonne at its peak, and could not be sustained — leading to the recent steep fall. The first inkling of problems came in cargo surveyor SGS (Malaysia) Bhd's palm oil exports statistics for the first 10 days of June 2007, which showed a sharp 23.5% fall in exports.
Subsequent data showed a continued fall in exports, with the latest June 1-25, 2007 data showing a 12.3% m-m fall in exports to 835,758 tonnes, from 952,648 tonnes.
Detailed breakdown of the earlier set of SGS numbers for June 1-20, 2007 showed a fall in the more price-sensitive major export markets like China and Pakistan. Total palm oil exports, as estimated by SGS, fell by 15.5% m-m to 675,424 tonnes, from 799,579 tonnes in May 1-20, 2007.
Exports to China, the largest consumer, fell by 29% m-m to 177,860 tonnes of palm oil. Pakistan, the third largest consumer, imported 32,350 tonnes, less than half of the 73,000 tonnes in the same period in May. On the other hand, exports to less price-sensitive EU countries (which have longer term mandatory biodiesel regulations in place) rose 14% to 176,095 tonnes.
Biodiesel's viability questionable
At current high palm oil prices, the viability of biodiesel has become questionable.
While the EU is sticking to its mandatory 5.75% use in transportation fuels by 2010, Malaysia's earlier plans to require domestic diesel fuel to contain a minimum of 5% palm oil-based biofuel in 2008 will be delayed due to high costs, according to the Plantation Industries and Commodities Ministry. "EnvoDiesel" was to contain 5% palm olein and 95% petroleum diesel.
Malaysia has reportedly issued over 90 licences for setting up biodiesel plants. Only seven plants have started production, with two more coming onstream this year, according to the ministry. The two new plants will raise annual capacity from 450,000 to 500,000 tonnes.
After the recent correction, palm oil's premium over South American soyoil has been sharply reduced, from well over US$100 (RM345) per tonne in early June 2007 to almost parity at present. On June 28, 2007, RBD Palm was trading at US$750 per tonne, compared with US$760 per tonne for Argentina soyoil, according to Oil World statistics.
As we enter into the peak production months, we expect palm oil prices to stay range-bound in the near term, unless there is a significant rally in soyoil.
Soybean and soyoil prices have been struggling recently due to favourable weather conditions in the US mid-west. However, soybean and soyoil prices rallied sharply last Friday after the latest USDA acreage report revealed that more acres were planted to corn, at the expense of soybean, due to strong export demand for corn and domestic ethanol consumption.
Sliding palm oil prices
CPO prices rallied to record highs of over RM2,700 per tonne in early June 2007. Since then, prices have been on a downward slide, falling to below RM2,300 per tonne and then rebounding to around RM2,450 per tonne at the time of writing.
The earlier rally in CPO prices was fuelled by falling end-stocks due to rising demand. Exports rose sharply in March-May 2007 as Chinese and Indian buyers that previously held back purchases scrambled instead to buy palm oil amid fears of further price hikes. As a result, end stocks for palm oil fell to a three-year low of 1.18 million tonnes in May 2007.
However, the sharp rise in CPO prices has since made it much less affordable, especially with soyoil prices not moving in tandem and the ringgit appreciating sharply. Indeed, palm oil prices traditionally trade at a large discount of US$50-US$120 per tonne to soyoil (which is generally considered a premium oil), but that reversed into a premium instead over the past few months.
Exports fall in June
Palm oil's premium over South American soyoil expanded to over US$100 per tonne at its peak, and could not be sustained — leading to the recent steep fall. The first inkling of problems came in cargo surveyor SGS (Malaysia) Bhd's palm oil exports statistics for the first 10 days of June 2007, which showed a sharp 23.5% fall in exports.
Subsequent data showed a continued fall in exports, with the latest June 1-25, 2007 data showing a 12.3% m-m fall in exports to 835,758 tonnes, from 952,648 tonnes.
Detailed breakdown of the earlier set of SGS numbers for June 1-20, 2007 showed a fall in the more price-sensitive major export markets like China and Pakistan. Total palm oil exports, as estimated by SGS, fell by 15.5% m-m to 675,424 tonnes, from 799,579 tonnes in May 1-20, 2007.
Exports to China, the largest consumer, fell by 29% m-m to 177,860 tonnes of palm oil. Pakistan, the third largest consumer, imported 32,350 tonnes, less than half of the 73,000 tonnes in the same period in May. On the other hand, exports to less price-sensitive EU countries (which have longer term mandatory biodiesel regulations in place) rose 14% to 176,095 tonnes.
Biodiesel's viability questionable
At current high palm oil prices, the viability of biodiesel has become questionable.
While the EU is sticking to its mandatory 5.75% use in transportation fuels by 2010, Malaysia's earlier plans to require domestic diesel fuel to contain a minimum of 5% palm oil-based biofuel in 2008 will be delayed due to high costs, according to the Plantation Industries and Commodities Ministry. "EnvoDiesel" was to contain 5% palm olein and 95% petroleum diesel.
Malaysia has reportedly issued over 90 licences for setting up biodiesel plants. Only seven plants have started production, with two more coming onstream this year, according to the ministry. The two new plants will raise annual capacity from 450,000 to 500,000 tonnes.