Analysts revising forecasts downwards to RM1,500 per tonne

23/10/2008 (The Star Online), Petaling Jaya - The crude palm oil (CPO) price is nearing its critical level of RM1,500 per tonne, mirroring the dampening impact of the global economic slowdown on demand for major commodities.

Palm oil futures for January delivery on the Bursa Derivatives Exchange fell to a two-year low of RM1,565 per tonne yesterday. The commodity has plunged 65% from its all-time high of RM4,486 in March.

The downtrend in CPO price was also in line with Nymex crude oil price for December, which fell to a one-month low of US$69.35 a barrel, down 53% from its record of US$147.27 on July 11.

It was reported that Opec would hold an emergency meeting tomorrow on the possibility of slashing its output by one million barrels per day.

Many plantation analysts are revising downwards their CPO price forecasts to RM1,500 to RM1,600 per tonne for the rest of 2008 and, in the worst-case scenario, even touching RM1,200.

Jupiter Securities head of research Pong Teng Siew said: “If CPO trades below RM1,500 per tonne, I believe it will mark the end of the entire CPO bull run for the past three years.

“This is a confirmation that world demand for both food and industrial commodities is collapsing as the world economy enters into recession.”

He said the price of CPO was pressured mainly by the excessive local palm oil stocks as well as easing demand for edible oils from major importers like China, India and Europe.

However, Pong said: “Perhaps it is timely for Malaysia to re-look at biodiesel production, which can be viable if the CPO price stays at RM1,500 per tonne.”

CIMB Research regional analyst Ivy Ng said the end of the high crude oil prices era signalled the end of high CPO prices.

Asked when the CPO price would bottom out, she said: “Based on our calculations, CPO is in its seventh month of price downcycle, which started in March.

“If this cycle follows the historical average of 17 months to bottom, we should see the end of the down cycle by September 2009 with a possible recovery thereafter.”

Ng holds the view that 17 months is a realistic timeframe as the current low CPO price could lead to lower fertiliser application among planters, thus reducing production in the next six to 12 months.

In addition, the biodiesel policy in Malaysia and Indonesia — if successfully executed — could start to stimulate demand in the second half of 2009.

Ng said both factors could coincide with a potential global economic recovery in 2010, which could help CPO price to recover.