MARKET DEVELOPMENT
CPO Prices Hit Below RM2,400 Level
CPO Prices Hit Below RM2,400 Level
04/06/2014 (The Star) - Crude palm oil (CPO) futures contracted on Bursa Malaysia Derivatives to below the RM2,400-per-tonne mark yesterday, the lowest since October last year, as market sentiment was spooked by reports of domestic palm oil inventories likely breaching two million tonnes by year-end.
Many regional commodity traders have indicated that domestic palm oil stocks would climb back to between two million and 2.5 million tonnes by end-2014, similar to the historical high of 2.6 million tonnes in 2012.
Contrary to earlier estimates, the global production by the world’s largest palm oil producers - Indonesia and Malaysia - this year is also expected to be higher at 30.4 million tonnes and 19.4 million tonnes, respectively, said palm oil industry expert M. R. Chandran.
“This year, there are more new oil palm maturing areas in east Kalimantan, Sarawak and Sabah that will trigger higher production. Even though there has been talk of the El Nino phenomenon affecting production, I believe the effect will only be felt in the next 18 to 24 months,” added Chandran.
He pointed out that the current bearish CPO market trend also reflected a higher supply-slower demand scenario on the back of the strengthening ringgit against the US dollar.
At the close, the third-month benchmark CPO futures contract for August settled RM29 lower at RM2,387 per tonne. This is in comparison with the average CPO price of RM2,693 per tonne in the first quarter of this year.
Despite CPO trading below RM2,400 per tonne currently, Chandran is still positive that the average CPO price this year would be in the RM2,600-per-tonne range.
“I believe the current low CPO price and its US$80 to US$85 price discount to soybean oil would be able to attract major buyers such as China and India to stock up for the Muslim fasting month of Ramadan at the end of this month, as well as the Eid Fitr celebration at end-July,” said Chandran.
Boon Weng Siew, the president of the Malaysian Estate Owners Association, meanwhile, did not foresee CPO staying below RM2,400 per tonne for long.
He attributed the current situation to the seasonally higher CPO production and higher palm oil stocks, as well as the uncertainty in China’s recent credit curb on commodity financing.
By end-May, many plantation analysts had expected the CPO output to increase further by 5% month-on-month (m-o-m) to 1.63 million tonnes, with stocks to rise 4% m-o-m to 1.83 million tonnes. The Malaysian Palm Oil Board is due to release its latest palm oil statistics for May next Tuesday.
Despite CPO trading below RM2,400 per tonne, Boon expected many oil palm planters in Peninsular Malaysia to still reap profits, given that their average CPO cost of production (COP) is at about RM1,200 per tonne, with the Sabah planters’ COP at about RM1,300-RM1,400 per tonne and Sarawak planters’ COP at RM1,600 per tonne.
Boon noted that the higher CPO production and increasing stocks could be absorbed by palm-based biodiesel producers both in Malaysia and Indonesia, who are seriously implementing their respective biodiesel mandates.
“What more with the CPO price trading below RM2,400 per tonne, which will deem biodiesel production viable for these (biodiesel) producers,” he added.
Many regional commodity traders have indicated that domestic palm oil stocks would climb back to between two million and 2.5 million tonnes by end-2014, similar to the historical high of 2.6 million tonnes in 2012.
Contrary to earlier estimates, the global production by the world’s largest palm oil producers - Indonesia and Malaysia - this year is also expected to be higher at 30.4 million tonnes and 19.4 million tonnes, respectively, said palm oil industry expert M. R. Chandran.
“This year, there are more new oil palm maturing areas in east Kalimantan, Sarawak and Sabah that will trigger higher production. Even though there has been talk of the El Nino phenomenon affecting production, I believe the effect will only be felt in the next 18 to 24 months,” added Chandran.
He pointed out that the current bearish CPO market trend also reflected a higher supply-slower demand scenario on the back of the strengthening ringgit against the US dollar.
At the close, the third-month benchmark CPO futures contract for August settled RM29 lower at RM2,387 per tonne. This is in comparison with the average CPO price of RM2,693 per tonne in the first quarter of this year.
Despite CPO trading below RM2,400 per tonne currently, Chandran is still positive that the average CPO price this year would be in the RM2,600-per-tonne range.
“I believe the current low CPO price and its US$80 to US$85 price discount to soybean oil would be able to attract major buyers such as China and India to stock up for the Muslim fasting month of Ramadan at the end of this month, as well as the Eid Fitr celebration at end-July,” said Chandran.
Boon Weng Siew, the president of the Malaysian Estate Owners Association, meanwhile, did not foresee CPO staying below RM2,400 per tonne for long.
He attributed the current situation to the seasonally higher CPO production and higher palm oil stocks, as well as the uncertainty in China’s recent credit curb on commodity financing.
By end-May, many plantation analysts had expected the CPO output to increase further by 5% month-on-month (m-o-m) to 1.63 million tonnes, with stocks to rise 4% m-o-m to 1.83 million tonnes. The Malaysian Palm Oil Board is due to release its latest palm oil statistics for May next Tuesday.
Despite CPO trading below RM2,400 per tonne, Boon expected many oil palm planters in Peninsular Malaysia to still reap profits, given that their average CPO cost of production (COP) is at about RM1,200 per tonne, with the Sabah planters’ COP at about RM1,300-RM1,400 per tonne and Sarawak planters’ COP at RM1,600 per tonne.
Boon noted that the higher CPO production and increasing stocks could be absorbed by palm-based biodiesel producers both in Malaysia and Indonesia, who are seriously implementing their respective biodiesel mandates.
“What more with the CPO price trading below RM2,400 per tonne, which will deem biodiesel production viable for these (biodiesel) producers,” he added.