Crude palm oil prices appear to have stabilised

04/03/2009 (The Star Online), Petaling Jaya - The current pattern of price movements in crude palm oil (CPO) futures, with the commodity stabilising at levels of about RM1,800 per tonne, is indicative of the persistence in the decoupling of CPO from crude oil prices, analysts said.

CPO has closely tracked crude oil prices as it is used as feedstock in the production of biofuel.

Credit Suisse said in its latest palm oil report that the current statistical trends showed “stronger evidence” that CPO was decoupling from crude oil.

The first signs of the decoupling of crude oil and CPO prices appeared in mid-November last year when palm oil prices were stabilising at RM1,400 per tonne at a time when crude oil was going down to US$49 per barrel, it said.

The research house noted that the decoupling trend had persisted in the past three months, with CPO prices appearing to have stabilised at between RM1,700 and RM2,000 per tonne although crude oil prices continued to fall.

Graph p5-cpocht

“Nevertheless, we believe that both palm oil and crude oil price trends will re-couple on the way up. Hence, we need strong crude oil price to give palm oil prices a major boost,” Credit Suisse said.

Rabobank, in its latest Soft Commodities Monthly report, also noted that the recent price movements between CPO and crude oil had appeared to show some level of decoupling.

That could be due to the easing biodiesel effect on prices as record low crude oil prices made biodiesel unprofitable, it said.

“During the rally, record edible oil prices made biodiesel production upprofitable,” Rabobank said. “After the slump, crude oil prices have fallen so much that biodiesel production is still unprofitable.”

Over the short term, however, weakening economic conditions would continue to suppress CPO prices, it said, adding that in the long term, when the underlying supply-demand imbalance became more apparent, palm oil prices would find support.

On Bursa Derivatives Exchange yesterday, the benchmark May CPO contract closed RM16 lower at RM1,855 per tonne.