MARKET DEVELOPMENT
Price of CPO likely to trend lower
Price of CPO likely to trend lower
15.03.2022 (www.thestar.com.my) - KUALA LUMPUR: Palm oil prices, which hit a high of more than RM8,000 per tonne recently, have edged lower over concerns of demand destruction as well as a possible end to the Russia-Ukraine war.
Crude palm oil (CPO) futures for May 2022 delivery decline by almost 7% to RM6,245 per tonne at yesterday’s close.
CGS-CIMB Research head of research Ivy Ng said concerns of potential demand destruction led by high CPO prices and substantial progress in peace talks between Russia and Ukraine are weighing down on CPO futures.
“The demand destruction is due to high palm oil prices causing lower income nations to reduce their demand. There are also expectations that the Russia-Ukraine war will end soon, pushing prices lower,” she told StarBiz.
Ng pointed out that experts at the recently concluded 33rd Palm and Lauric Oils Price Outlook Conference (POC) 2022 were less optimistic on the prices of CPO in the second half of this year due to demand destruction.
Nonetheless, nine speakers at the POC made wide ranging forecasts for CPO to trade between RM4,000 and RM9,427 per tonne this year.
Ng noted that Dorab Mistry and Abdul Rasheed Janmohammed were the most bearish on CPO price prospects in the second half of this year. Dr James Fry and Togar Sitanggang, on the other hand, were the most bullish on the price outlook for this year.
Meanwhile, Ng said the research house has yet to price in several of the current developments in its price forecast, which gives its projections some room for further increases.
“There is upside to our current average CPO price forecast of RM4,100 per tonne for 2022 as we have not reflected the Russia-Ukraine war and the latest domestic market obligation (DMO) policies in our predictions,” she explained.
Having said that, Ng conceded that there were divergent views on the CPO price trend for the second half of this year, which makes its a challenge to make an accurate call on prices.
Some are expecting prices to stay high as the “supply response from farmers could be slow due to competition with other crops for acreage and fertiliser shortages.”
On the other hand, other experts expect a pick-up in palm oil production and demand destruction to bring down CPO prices.
In general, though, Ng noted that experts were bullish on CPO prices as a whole in the near-term as the “perfect storm” hits the edible oils market.
Year-to-date, CPO prices have risen 44% to RM7,511 per tonne driven by unexpected disruptions to sunflower oil exports – a rival edible oil – given that the Russia-Ukraine region accounts for about 60% of the world’s sunflower oil output.
Other factors that pushed CPO prices upwards included the drought in South America, labour shortage in Malaysia and the DMO rule in Indonesia which requires exporters in Indonesia to sell 30% of their planned exports in the local cooking oil market effective March 10, 2022.
“All the speakers concurred that edible oil supplies are currently very tight, so prices could stay firm until the second quarter of this year.”
For the remainder of 2022, Ng said several key swing factors to watch out for would be the duration of the Russia-Ukraine conflict and the resumption of exports for sunflower seed and sun oils in the Black Sea regions.
She is also keeping an eye on Indonesia’s DMO policy and its impact on palm oil exports, the labour shortage situation at Malaysian estates, weather developments in North America and Canada, farmers’ planting decisions, crude oil prices, global liquidity and economic growth.
“Also (look out for) changes in government policies on import duties and export taxes as well as biodiesel mandates that could impact the demand for edible oils,” she said.