28.10.2020 (www.thestar.com.my) - PETALING JAYA: Crude palm oil (CPO) prices are expected to increase on the back of demand recovery from India and China as well as a decline in supply due to a labour shortage.

CGS-CIMB Research head Ivy Ng is expecting CPO prices to average at about RM2,500 per tonne this year, which is the highest since 2017 as demand is expected to increase and supply to remain under pressure due to labour issues and dry weather.

This was despite the collapse in commodity prices that saw CPO prices go below RM2,000 per tonne in March due to the Covid-19 outbreak and movement control orders (MCOs) in major countries, especially India and China.

“This year is one of the most volatile years for CPO prices. Earlier this year, CPO prices spiked to above RM3,000 per tonne due to a supply concern in Malaysia because of weak production in the last quarter of 2019 and first quarter of this year, as well as Indonesia’s latest biodiesel mandate.

“Then, the Covid-19 outbreak in March saw prices go below RM2,000 per tonne due to supply chain disruptions and MCOs in many countries globally.

“CPO recovered stronger than anticipated in May. On a nine-month average, CPO prices were averaging at RM2,546 per tonne, which is higher than the 10-year average of RM2,530, ” she told reporters at a virtual press conference – the annual Palm and Lauric Oils Price Outlook Conference & Exhibition (POC).

LMC International head of South-East Asia Dr Julian Conway McGill expects CPO prices to soften from their current level of above RM3,000 per tonne, as China is likely to slow its purchase.

“We expect the CPO price to average at RM2,600 in the next six months, as China is likely to opt for soybean oil if CPO prices remain above RM3,000, ” he said.

He added that the low global diesel and crude oil prices would also pressure the vegetable oil down, as many countries would put their biodiesel plans on hold.

Notably, Malaysia is the second-largest palm oil producer in the world after Indonesia. Malaysia contributes 26% of the world’s palm oil production, while Indonesia contributes 58%.

Ng added that dry weather and a labour shortage would also see lower CPO production from Indonesia that would further drive CPO prices up this year. She said prices are likely to go higher than had been forecast, depending on the development of the La Nina weather phenomenon.

The Malaysian Palm Oil Association said Malaysia could lose about 25% of production due to a labour shortage, as the Covid-19 pandemic has restricted the movement of foreign workers while some foreign employees have been repatriated home.

https://www.thestar.com.my/business/business-news/2020/10/28/price-boost-for-palm-oil