It could sustain at RM3,000 to RM3,300 per tonne in Q1 2011
24/12/2010 (The Star Online), Petaling Jaya - The current buoyancy in crude palm oil (CPO) prices could possibly see the commodity scaling higher than this year's high of RM3,766 per tonne by the end of next week.

Prices could also sustain at RM3,000 to RM3,300 per tonne in the first quarter of 2011, said industry consultant M.R. Chandran.

He said CPO prices could be traded at RM3,700-RM3,800 per tonne by the year-end “should the major oil palm-growing areas in Johor, Pahang, Sabah or Sarawak were hit with heavy floods anytime now, given the current monsoon season.”

The average CPO price for 2010, however, will range between RM2,600 and RM2,650 per tonne “as prices only started to significantly climb up within the past four months,” Chandran told StarBiz yesterday.

The price of CPO so far this year had risen by 36%, touching a high of RM3,766 per tonne on Dec 14. Yesterday, the benchmark CPO futures contract for March closed RM38 higher at RM3,658 per tonne.

For 2011, Chandran is targeting higher average CPO prices at RM2,800 to RM2,900 per tonne.

“Prices will be fundamentally supported by strong demand on the back of steady supply of CPO production next year,” he added.

Despite additional CPO production by another two to three million tonnes next year, this increment will be matched by strong demand from China, India and other developing countries.

In addition, shortfall in the production of other oilseeds like rapeseed and sunflower oil as well as no major changes in soybean production next year would result in the demand for CPO to remain intact, said Chandran.

“Currently, CPO price discount to its rival soybean oil has narrowed to less than US$100 per tonne compared with the traditional average price discount of US$160 to US$170 per tonne previously,” he added.

OSK Research, meanwhile, is maintaining its average palm oil price expectation at RM2,700 for calendar years 2010 and 2011.

“It appears that we are on track to hit a price average of RM2,700 for the year. Our expectation for 2011 of RM2,700 per tonne appears over-conservative right now, given the prevailing prices of RM3,500-RM3,600,” the research unit said in its latest note.

However, with a potential bumper harvest in second half during the high crop season, it said prices could soften significantly.

“Hence, we are keeping our expectations as conservative as possible,” the research unit added.

It also believe that the upcycle in palm oil price, which began in October 2008, will terminate sometime in 2011.

“The previous two upcycles lasted exactly 37 months and should the current cycle be of similar duration, palm oil price will then peak in November 2011.

“However, with a bumper crop period kicking in by mid-2011, we are likely to see a shorter upcycle,” it added.

HwangDBS Vickers, in its latest sectorial focus, expect strong palm oil prices in the first quarter of 2011.

The supporting factors include seasonally higher demand for palm oil in December 2010 to January 2011, backed by demand for Chinese New Year celebration and compounded by efforts to secure as much supply as possible to cool down inflation in China.

Furthermore, January and February are seasonally the weakest months for palm oil production.

“Next year, we expect sharper-than-usual first-quarter seasonal drop in Malaysia's fresh fruit bunches yields due to the laggard impact of severe drought in January to February this year.”