Short-term setback: Industry players expect crude palm oil (CPO) prices to pick up soon as there is healthy demand for the vegetable oil.

25/10/2014 (The Star) - At The Star Roundtable on Palm Oil 2014 held at Menara Star in Petaling Jaya recently, The Star specialist editor M. Shanmugam and deputy news editor Hanim Adnan led the discussion joined by IOI Corp Bhd CEO Datuk Lee Yeow Chor, Malaysian Palm Oil Council CEO Tan Sri Dr Yusof Basiron, Genting Plantations Bhd president and chief operating officer Yong Chee Kong, IJM Plantations Bhd chief executive officer and managing director Joseph Tek, and Sarawak Oil Palm Plantation Owners Association chairman Paul Wong.

The topics: Crude palm oil (CPO) price outlook; supply rationalisation measures; Goods and Services Tax; challenges faced by Sarawak and Sabah planters; and, sustainability and standards. The topics: Crude palm oil (CPO) price outlook; supply rationalisation measures; Goods and Services Tax; challenges faced by Sarawak and Sabah planters; and, sustainability and standards.

The outlook in the commodity sector seems to be bearish lately given the volatile crude oil prices currently trading at US$80 a barrel. What are the on-going market trends that could affect the commodity sector, in particular crude palm oil (CPO), going forward?


Of the 5 billion hectares of global agriculture land, oil palm is
only using 15 million hectares. This represents less than 0.3%
of the world’s total agriculture land. - TAN SRI DR YUSOF BASIRON

Yusof: The industry has employed experts to come up with the diagnosis as well as predictions on market trends, particularly the price of CPO, in an environment where petroleum prices are weakening, there is high soybean production in the US, and high inventory this year. This is reflected in our palm oil industry experiencing low price dipping below RM2,000 per tonne in September but the CPO price has since recovered because the world market is always aware of the limitation of how much the price can drop or increase.

So now, with a little bit of initiative such as “zerorising” the CPO export tax by Malaysia and Indonesia, I believe the pick up in the imports and exports of palm oil will become significant again. That itself is a correcting factor for the low CPO prices, meaning that the solution for low price is low price – simply because when the price is low, people do tend to import a lot more and demand in itself will trigger prices to recover.

So, the last part of the market correction will be by the market itself, although a little bit of initiative to ensure our producers are not affected by too low prices like zerorising the CPO export duty is helpful. The result is that CPO prices have started recovering up till now.

What are the predictions for palm oil in 2015?


We should look at expanding into high performance products
such as specialty chemicals , where the market is bigger. - YONG CHEE KONG

Yong: There have been a lot of headwinds this year, affecting short-term price volatility. I think in the long run, CPO prices should hold well because of continued growth in demand for palm oil. The current short-term setback in CPO prices will soon blow over and I hope to see better prices next year.


If replanting incentives can be extended beyond the smallholders,
we will see more areas with old trees replanted and further support
to reduce production. - JOSEPH TEK

Tek: Planters in Malaysia are an optimistic bunch. I personally believe that CPO prices will swing upward and we will be looking at positive prices next year. Based on the Malaysian Palm Oil Board (MPOB)’s September release, we are already seeing the end of peak crop season with a 9% drop in production. This is a significant month-on-month plunge. If traced back to the first quarter this year, there was a bone-dry period (non El-Nino related) in February and March that could have affected fresh fruit bunch abortiveness, production and formation of flowers. The dryness extended later to Sabah.

If this has manifested its effect, you will also see secondary lag effects in one and two years’ time-frame. So CPO production is likely to see a biological and weather correlated effects resulting in lower production. In the meantime, we are seeing exports picking up for the festivals thus drawing down some inventory. Hence, I want to believe CPO prices will recover next year.



If investors follow the proper procedure for NCR land development
in Sarawak, there should not be major issues because this is a
scheme promoted by the State Government. - PAUL WONG

Wong: I think the data presented by Oil World executive director Thomas Mielke who pointed out that the increase in CPO production in 2015 will probably be the smallest growth of around two to three million tonnes compared to 2014. But in the bigger picture, the world demand for vegetable oils will be more than supply. So, if demand stays strong, I think the CPO price will not be likely come down further and will definitely pick up. I believe we are already at the tail end with the CPO prices bottoming out, unless other factors come in such as continued slowdown in the global economy and the further weakening of crude oil prices.



Steady demand, and end-December stocks not likely to be high
 ... these factors are positive for palm oil prices at the start of 2015. - DATUK LEE YEOW CHOR

Lee: I am positive about the palm oil price outlook for 2015 given steady demand, and the end-December 2014 palm oil stocks will not likely be on the high level. We have already seen the effect of production increase in September, and soon there will be supply constraint by year end and going into the beginning of next year. These factors are positive for palm oil prices during the start of 2015.