Malaysia’s CPO price may stay higher if exports to India are maintained

KUALA LUMPUR (May 29): Malaysia’s crude palm oil (CPO) futures benchmark price may trade higher in June and July at RM2,400 per tonne if the world’s second largest edible oil producer maintains its higher export figures, including its export to India, Palm Oil Analytics owner and co-founder Dr Sathia Varqa said.

However, as production reaches its peak from August until October, the commodity price may fall slightly to RM2,200 per tonne.

“The good numbers of export from Malaysia to India have been positive in the month of May which we see supporting crude palm oil futures in the last two weeks,” he said at a global webinar entitled ‘Is Covid-19 a Bull or a Bear for Veg Oils?’ hosted by the Indian Vegetable Oil Producers’ Association.

India, which is Malaysia’s top buyer of palm oil, has resumed its purchase of palm oil after four months amid improving trade ties between the two nations, Sathia noted.

For the month of March for example, Malaysia only exported 10,806 tonnes of palm oil to India, a whopping 97 percent slump from a year earlier and the lowest monthly total in board data going back to 2000.

Sathia added that for the first four months of 2020 Malaysian palm oil exports was down by 25 percent versus the January-April 2019 period.

On production, he said Malaysia and its counterpart, Indonesia, would see lower production while facing the uncertain and fragile COVID-19 challenges.

Malaysia’s production is expected to go down to 19 million tonnes in 2020 from 19.85 million in 2019 while Indonesia’s production is likely to remain unchanged at 45 million tonnes.

While Malaysia reduces the CPO export tax to zero percent in June from 4.5 percent in May and Indonesia increases the levy by US$5 to US$55, the Malaysian CPO exports will enjoy a price discount.

This leaves Malaysia’s CPO cheaper than Indonesia by US$10 to US$15, he stressed.

“This is good for Malaysia in the short term. However, if Indonesia decides to scrap the levy or reduce the levy, then the dynamics will change and vice versa.

“Meanwhile, as China and US trade remains uncertain, China may not be pursuing its purchase of soybean oil from the US and turn to Brazil. But as COVID-19 impacted many in the agriculture sector, China has a window to shift its edible oil purchase to Malaysia and Indonesia…and given its cheaper price, Malaysia may benefit more,” he opined.

Dr James Fry of LMC International Ltd, who was another panel speaker during the three-hour discussion with almost 12,000 online participants, said the biodiesel demand has inevitably suffered along with other end-uses for oils, since the consumption of fuel has been hit by the impact of COVID-19.

“However, biofuel demand is determined by government policies. Mandates are often announced but are not always implemented. In Malaysia, we have seen the B20 (a 20 percent biodiesel blend) mandate postponed several times, presumably because the government does not want to pay a larger subsidy or ask drivers to pay more for fuel.

“Indonesia, with its much bigger and more ambitious B30 mandate, has faced up the problem of funding the mandate by making the producers pay sizeable export levies to a fund to keep biodiesel competitive,” he said.

Source : The Edge Markets