MARKET DEVELOPMENT
Upbeat Outlook on CPO Prices
Upbeat Outlook on CPO Prices
15/01/2014 (Business Times) - RHB Research Institute is positive on crude palm oil (CPO) prices as Malaysia’s palm oil stockpile only rose marginally to 1.9 million tonnes in December last year, which is likely to be the seasonal peak and could see inventory easing in the months ahead — providing a lift for prices.
In its research report, RHB Research said Malaysia’s palm oil inventory ended at 1.9 million tonnes last year, which is sharply lower vis-à-vis end-2012 as export growth outstripped production growth and local consumption surged during the year.
“Prices have softened and palm oil prices have retraced in the past two weeks as Indonesia’s mandatory biodiesel programme encountered hiccups due to pricing issues with Pertamina (Indonesia’s national oil and gas company), only managing to secure 18 per cent of the three million tonnes of biodiesel supply that is required,” RHB Research said in giving the sector an “overweight” recommendation.
Indonesia and Malaysia are the world’s top two oil palm producers.
It said production weakness was more apparent in the second quarter and it believes that palm oil prices will strengthen progressively throughout this year due to lacklustre production in Indonesia, as a result of rainfall deficit over the past two years.
“We believe more price strength will be seen in the second quarter as production weakness becomes more apparent, and the weak first-quarter production is likely to be perceived as seasonal in nature.”
It added that India’s import tax for refined edible oil from 7.5 per cent to 10 per cent will have a neutral impact and will only cause a switch from refined to crude products.
Tax for crude edible oil has remained unchanged.
“We view the price pullback as temporary and as providing a buying opportunity.
“The main stumbling block for palm oil prices to charge higher at this point in time is the relatively narrow discount to soyabean oil at US$65 per tonne (RM211.9).
On the flipside, this also means there is a US$65 upside for palm oil prices before it comes to parity against soyabean oil price.
As we have seen in 2009 and 2010, poor palm oil production will lead to parity price against soyabean oil.
In its research report, RHB Research said Malaysia’s palm oil inventory ended at 1.9 million tonnes last year, which is sharply lower vis-à-vis end-2012 as export growth outstripped production growth and local consumption surged during the year.
“Prices have softened and palm oil prices have retraced in the past two weeks as Indonesia’s mandatory biodiesel programme encountered hiccups due to pricing issues with Pertamina (Indonesia’s national oil and gas company), only managing to secure 18 per cent of the three million tonnes of biodiesel supply that is required,” RHB Research said in giving the sector an “overweight” recommendation.
Indonesia and Malaysia are the world’s top two oil palm producers.
It said production weakness was more apparent in the second quarter and it believes that palm oil prices will strengthen progressively throughout this year due to lacklustre production in Indonesia, as a result of rainfall deficit over the past two years.
“We believe more price strength will be seen in the second quarter as production weakness becomes more apparent, and the weak first-quarter production is likely to be perceived as seasonal in nature.”
It added that India’s import tax for refined edible oil from 7.5 per cent to 10 per cent will have a neutral impact and will only cause a switch from refined to crude products.
Tax for crude edible oil has remained unchanged.
“We view the price pullback as temporary and as providing a buying opportunity.
“The main stumbling block for palm oil prices to charge higher at this point in time is the relatively narrow discount to soyabean oil at US$65 per tonne (RM211.9).
On the flipside, this also means there is a US$65 upside for palm oil prices before it comes to parity against soyabean oil price.
As we have seen in 2009 and 2010, poor palm oil production will lead to parity price against soyabean oil.