Demand Pullback If CPO Hits RM4,000

Demand

destruction will start if crude palm oil (CPO) prices get excessively

high, say research houses, OSK Research and ECM Libra.

Currently, the CPO price is hovering at RM3,000 per tonne.

OSK Research said palm oil supply would remain tight in the first half of 2011 and this would keep the prices relatively firm.

ECM Libra Investment Research said the CPO price rally could continue into early next year.


OSK said the upside was expected to be limited to between RM3,300 and

RM3,500 per tonne, while ECM Libra said if the CPO price reach RM4,000

per tonne, a pullback in demand could happen.

The scenario was seen in 2008 when high CPO prices were counter

productive to demand and as a result, stock levels ballooned to an

all-time high of almost 2.3 million tonne, triggering a decline in the

prices.

OSK has raised its CPO price projection to RM2,700 per tonne for

this year and next year respectively, from an earlier estimate of

RM2,500 per tonne.

Among the driving factors were weak Malaysian production and strong

exports, shortage in the soyabean market due to strong demand by China,

and unfavourable weather affecting South American soyabean planting, it

said.

It said CPO prices should ease back if only based on strong fourth quarter production and slower export demand.

“However the prices were supported by firm soyabean prices.

“CPO price has been rallying not on its own fundamentals but on the

strength in soyabean, which is facing prospects of a production

shortfall in Brazil, one of the key producers,” it said.

Malaysia’s palm oil production rose 4.7 per cent in October to 1.637

million tonnes after slower harvest in September due to the Muslim

fasting month.

Year-to-date, production totalled 14.302 million tonnes, one per cent lower than last year’s.

Exports in October declined 0.6 per cent compared to September.

China, the largest palm oil export destination for Malaysia, reduced

its purchases by 41,400 tonnes while India cut down its imports by

34,600 tonnes.

Year-to-date, exports totalled 13.852 million tonnes, which were 5.4 per cent higher than a year earlier.

However, combined with Indonesia, exports up to September only increased by 1.6 per cent. — BERNAMA



Source : Business Times

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