25/07/2009 (The Star Online), Petaling Jaya - Average crude palm oil (CPO) prices in the third quarter will likely hit RM1,700 to RM1,900 per tonne from earlier estimates of RM2,000 to RM2,200 due to unexpectedly high edible oils inventory in China and India, analysts said.

Analysts said Chinese and Indian importers recently revealed that edible oil orders had slowed down since last month due to current high inventory levels, said to be sufficient for three to four months’ demand against the average inventory size, which is equivalent to about six weeks’ supply.

A trader told StarBizWeek that CPO prices would remain flat and trade below RM2,000 per tonne as “demand destruction from high stockpiles has a more significant impact on CPO prices compared with the emerging El Nino phenomenon.”

Yesterday, the benchmark CPO futures contract for October on Bursa Derivatives Exchange closed RM22 higher at RM2,122 per tonne.

“It will be interesting to gauge the impact of the high stockpiles from these two major vegetable oil consuming nations on Malaysia’s palm oil exports from July onwards,” the trader said.

In June, local palm oil exports to India slumped 43% to 57,139 tonnes from a month earlier, while exports to China were up 6% at 336,946 tonnes.

Oil World, an independent forecasting agency for oils and oilseeds, said soybean shipments to China had declined as the Chinese government was accelerating sales of domestic crops to support domestic pricing.

China has decided to sharply reduce soybean imports in July and August, resulting in a sharp drop in soybean exports from South America, a major exporter of soybeans.

OSK Research is maintaining an “underweight” call on the plantation sector due to the bearish palm oil price outlook.

It expects more pressure on CPO price as the soybean harvesting season draws closer in the next few months.

“Under such circumstances, CPO prices will likely fall below RM2,000 per tonne on a sustained basis,” the brokerage said.

With the CPO price currently averaging at RM2,234 per tonne, OSK Research said its 2009 price assumption of RM1,900 per tonne implied that the CPO price for second half this year would average at RM1,700 per tonne.

CPO price tumbled from about RM2,800 per tonne in May to below RM2,000 per tonne due to a recovery in production, resulting in higher inventory levels.