MARKET DEVELOPMENT
CPO prices to moderate in 2022 on higher output
CPO prices to moderate in 2022 on higher output
30.03.2022 (themalaysianreserve.com) - However, a prolonged Russia-Ukraine conflict might keep prices elevated in 2022-2023
FITCH Ratings Inc expects a gradual decline in crude palm oil (CPO) prices on higher output, and assumes an average benchmark price of US$1,000 (RM4,220) per tonne in 2022, US$700 per tonne in 2023 and US$600 per tonne thereafter.
A prolonged Russia-Ukraine war may, however, keep prices elevated in 2022-2023.
In a report yesterday, Fitch stated that Malaysian benchmark CPO spot prices rose to a record of more than US$1,900 a tonne in early March 2022, and averaged around US$1,450 per tonne to date.
This is significantly higher than the level of around US$1,070 per tonne in 2021 and more than double the 10-year average price of roughly US$700 per tonne.
“The price surge is driven by a weaker outlook for the supply of substitute vegetable oils due to uncertainty over sunflower seed oil from Ukraine and Russia, the impact of a drought on South American soybeans and Indonesia’s steps to curb palm oil exports,” said Fitch.
Fitch added that vegetable oil output forecasts for 2021-2022 were cut by two million tonnes by the US Department of Agriculture (USDA) in March.
Sunflower seed oil use constitutes 9% of the global vegetable oil demand, with Ukraine and Russia having contributed over 75% of global supply.
Brazil, Argentina and Paraguay, which account for more than half of the world’s soybean supply, are also expecting smaller harvests in 2022 due to La Nina-induced dry weather.
Indonesia imposed a domestic market obligation (DMO) in January 2022 to ensure adequate supply of palm oil to the domestic market at reasonable prices.
This required producers to supply a portion of their output to the local market to obtain export permits. The DMO was withdrawn in March, but the government has increased the levy on exports in its place.
These steps, aimed at curbing exports, have also supported CPO prices this year.
“We expect CPO prices to drop over the next year, helped by higher output of palm and other vegetable oils. USDA, despite cutting mats forecast, expects global vegetable oil production to grow by 2% in 2021-2022 after a decline in 2020-2021.
We expect higher palm oil output in Indonesia to be a significant contributor,” said Fitch.
It added that good weather and high CPO prices should encourage producers to raise yields in 2022, with Indonesia’s industry body estimating an increase in palm oil output of around one million tonnes after declines in 2020 and 2021.
“This should more than offset any weakness in Malaysia, which has been hit by a shortage of foreign workers. Plans to bring in foreign workers to work on plantations in Malaysia have continued to face delays and the country’s plantation
“The industries minister now expects the first batch of workers to arrive in May and June, months later than the original plan for early 2022,” Fitch added.
The benchmark CPO futures contract price closed RM32 higher at RM6,010 a tonne in Bursa Malaysia Derivatives Bhd on Monday.