UNCERTAIN PRICES: Crude palm oil (CPO) and soybean oil (SBO) demand is set to see a decline, trailing behind an expected
deceleration of global economic growth next year as major consuming countries such as China, India and the US see reduced GDP.

23/12/2011 (Borneo Post) - Crude palm oil (CPO) and soybean oil (SBO) demand is set to see a decline, trailing behind an expected deceleration of global economic growth next year.

“The four major vegetable oil consuming countries (China, Europe, India and the US) represent 76 per cent of the world vegetable oil demand,” said Kenanga Investment Bank Bhd (Kenanga Research) in its research report.

The research house noted that the four countries had experienced slower gross domestic product (GDP) growth in the nine months of 2011, year-on-year.

The main concern, as pointed out by the report, was Europe, which commanded 23 per cent of world edible oil demand. When the European Commission revised its GDP growth to only 1.5 per cent in 2011 and 0.5 per cent in 2012.

It noted that, “The combined effect will negatively affect Malaysia’s CPO exports, which have dropped 10 per cent month-on-month in November 2011, to 1.66 million metric tonnes (mt).”

Kenanga Research had expected a decline in CPO production from November 2011 onwards to clear the high palm oil inventory slightly up to March 2012. By the end of the first quarter next year, the research house believed that the stock could still end up above its five-year historical average of 1.69 million mt following the softened exports.

CPO prices tend to be supported during abnormal weather condition as a result of supply shortage caused by possible floods and disruption to the fresh fruit bunch (FFB) harvesting process.

As the current La Nina was expected to weaken after January 2011, the research house expected CPO prices to stay above RM3,000 up to the first quarter of 2012 and then move downward as weather conditions returned to normal and the production up-cycle picked up from the second quarter onwards.

The report also highlighted that the global SBO production estimate was relatively unchanged at 54.44 million mt. However, China’s SBO demand declined as its economy had been suffering from reduced import requirements from Europe, the US and other countries.

“A weaker outlook for SBO demand may cause its prices to weaken further. This is negative for CPO prices as it is a common substitute for SBO,” Kenanga Research stated.