16/06/2011 (Borneo Post) - Crude palm oil (CPO) industry players are expected to see the start of a new cyclical downtrend for CPO prices, after two consecutive years of being on a year-on- year uptrend.

“We believe as productivity improves for CPO globally on the back of weather returning to normal levels and the impact of tree stress and lower fertiliser application wearing off, CPO prices should begin the next cyclical downtrend, which we expect to last for two years, if the normal 40 to 45 month cycle persists,” noted analyst at the RHB Research Institute Sdn Bhd (RHB Research).

“As such, we maintain our CPO price assumptions of RM3,100 per tonne for 2011 and RM2,900 per tonne for 2012 for now,” said the research firm.

The research house maintained its CPO assumptions for 2011 and 2012 with two main conjectures. The assumptions were based on an anticipation of a weather normalisation that would result in a “normal” production levels for global vegetable oil crops in the second half of 2011 (2H2011).

In addition to that, RHB Research attributed its CPO price expectations on a stable crude oil price that would not see a spike and would not remain at high levels for too long.

To recap, Malaysia’s CPO production rose substantially in May by 13.7 per cent mom, while exports rose by 4.3 per cent month-on-month (m-o-m). On a y-o-y basis, the recovery was stronger, as production rose by 25.6 per cent y-o-y, although exports increased by a smaller 2.7 per cent y-o-y. As a result of the larger increase in production vis-a-vis exports and the 53 per cent mom increase in CPO imports in May, closing CPO stock levels rose by 14.8 per cent m-o-m to 1.92 metric tonnes in May from 1.67 metric tonnes in April.

On a y-o-y basis, CPO stocks rose by a higher 22.8 per cent. As a result of the higher CPO stock levels, the stock/usage ratio in May rose to 11.15 per cent from 9.98 per cent in April, and is now closer to the high end of historical scale of between 6.4 per cent and 12.7 per cent. This was far higher than the 9.1 per cent historical average.

“We believe that as CPO production continues its recovery in the coming months, the price differential could reduce and normalise, and CPO prices would therefore weaken in 2H2011,” it pointed out.

Nevertheless, the research firm was aware that a significant change in crude oil price trend would affect its projections for the CPO prices.