CPO price on downtrend

Wednesday July 13, 2011

By HANIM ADNAN
nem@thestar.com.my

Rising production and high inventory putting pressure on commodity

PETALING JAYA: The downward pressure on crude palm oil (CPO) prices continued yesterday amid rising production and an 18-month-high inventory. This has also triggered market talk that the commodity may slip to below RM3,000 per tonne this week.

The Malaysian Palm Oil Board (MPOB) said in its June statistics released on Monday that CPO production had increased to 1.75 million tonnes while end-stocks surged to 2.05 million tonnes despite higher exports at 1.58 million tonnes.

All CPO futures contract closed on a minus territory yesterday, with the third-month benchmark CPO futures for September contract down RM39 to RM3,034 per tonne.



HwangDBS Vickers Research said in its sectoral report yesterday that palm oil exports in the coming months were expected to rise on stock replenishment, some substitution and stronger demand during Ramadan.

However, CPO output is forecast to seasonally ramp up over the same period, boosted by yield recovery and new tree maturities.

“In our estimation, this should raise palm oil end-stock levels through end-August and keep them above two million tonnes until the end of the year.

“We believe CPO prices owe its current resilience to weak soybean crushing margins and expectations of 2% year-on-year drop in the US soybean harvest, which may tighten near-term soybean oil supplies.

“Therefore, CPO price is expected to resume its downtrend in the fourth quarter of this year,” it added.

Malaysian Estate Owners Association president Boon Weng Siew voiced his concern over the current high level of palm oil stocks. “When palm oil stocks rose to two million tonnes in the fourth quarter of 2008, CPO price went down to about RM1,500 per tonne!”

Boon said the Government's B5 (blending of 5% biodiesel with 95% fossil fuel) programme should help the industry to manage the domestic palm oil stocks level.



The programme, which kicked off officially early last month, will be undertaken in stages. It will start with the central region covering Putrajaya, Malacca, Negri Sembilan, Kuala Lumpur and Selangor.

Malaysian Biodiesel Association vice-president U.R. Unnithan told StarBiz recently that 170,000 to 200,000 tonnes of biodiesel were expected to be used in the B5 programme for the central region.

The Government is targeting some 500,000 tonnes of local palm oil stocks to be used for the entire programme.

Meanwhile, despite palm oil stocks rising above the two million tonne mark in June, OSK Research was not overly concerned as “we believe that most of the contributing factors are already known and may have been factored into the decline in palm oil prices from RM3,963 in February to a low of RM3,016 per tonne last week.”

The research outfit also reckoned that inventory might fall back promptly due to supply disruption in the second half of this year.

“With CPO now trading at a significant US$210 per tonne discount to soybean oil, there is plenty of room for palm oil price to move higher when supply disruption materialises in the months ahead,” it said.