25/01/2008 (The Star Online), Petaling Jaya - The price competitiveness of crude palm oil (CPO) will remain intact, at least in the first half this year, despite crude oil being traded below US$90 a barrel.

Analysts said the rise in the price of CPO over the past three months, which hit a record at RM3,420 per tonne on Jan 15, had been “independent” of the crude oil price movement.

“The commodity closely tracks the prices of rival oilseeds like soybean, rapeseed, corn, wheat and canola. CPO will continue to be supported by the worsening supply demand imbalances in terms of declining global oilseed production,” an analyst with a local stock broking firm said.

The benchmark CPO futures for April delivery rebounded to close RM96 higher at RM3,211 per tonne on Malaysia Derivatives Exchange yesterday, after succumbing to losses in the past two days as soybean futures on the overnight Chicago Board of Trade climbed higher to close at US$12.07 per bushel.

“As the price discount between CPO and soybean widens, the local commodity will be more attractive to buyers,” analysts said.

On the supply factor, Citi Investment Research said more palm oil was needed to fill the shortfall in food and other sectors as soybean oil, rapeseed oil and corn got diverted to the bioenergy sector.

“We are projecting global CPO supply to rise 6% to 7% until 2012 versus demand growth of 8% to 9% per annum,” it added.

OSK Research believed that the short-term weakness in crude oil was not a concern to agriculture investors as “the weakness is partly related to the US dollar recovery.” 

It said the link between crude oil and palm oil was overrated. The biodiesel boom is driven by regulation and not by economic feasibility.

The brokerage said while demand for biodiesel could have aggravated the supply-demand imbalance resulting in a steep rise in CPO price, the main price driver would be strong demand from emerging economies such as China and India.

Oil World, an independent forecasting agency for oils and oilseeds, expects global production of major oilseeds in the 2007-2008 season to decline to 382 million tonnes from 397 million tonnes in the previous season. 

Soybean production is expected to fall by 15 million tonnes to 223 million tonnes in the wake of switching land to corn in the US. 

The Oil World forecast comes as a confirmation over the US Department of Agriculture's latest report that by end-2008 marketing season, the world would be left with only two weeks' supply of four major oils - soy, sunflower, rapeseed and cotton. This would mark the third straight season of decline in the world's oilseed stock.