Palm Oil Remains "Jewel" In Highly Volatile Commodities Sector

KUALA LUMPUR: Malaysia’s commodity sector remained crucial in 2009 as it provided the much needed boost at a time when the nation is facing an economic stalemate.

Through its main stay – palm oil, remained the “jewel” in the commodity sector and the country reaped the benefits of high prices, improved productivity and strong export demand which led to higher export earnings.

In 2009, crude palm oil fetched the highest price of 2,894 per tonne on May 13, bringing a windfall to the 2.2 million smallholders who depend on the commodity for a livelihood.

But as of December, prices hovered between RM2,400 and RM2,600 per tonne as there was mounting concern that stocks were building up.

Analysts predict that the hotter weather due to the El-Nino pattern and stronger demand from China and India, would push the price to breach the RM3,000 per tonne level next year.

Infact, the “golden crop” is poised for even better days as the country has taken steps to internationalise the crude palm oil futures (CPO) contract which is traded on Bursa Malaysia Derivatives.

A senior palm oil trader with Interband Group Sdn Bhd, Jim Teh, told Bernama that there was a possibility the cpo market could enter into a bull run in the second half of next year.

“There is likely be more foreign players emerging in the trading of cpo futures market here next year,” Teh told Bernama, attributing his optimism to the collaboration between Bursa Malaysia Derivatives and CME Group Inc, the world’s largest and most diverse derivatives marketplace.

Under the first agreement signed with CME, crude palm oil futures will be traded on Globex CME which has access in over 80 countries.

The second agreement allows for CME to develop a US dollar denominated CPO futures contract to be listed on Globex CME.

The main justification for this move is to ensure price discovery for palm oil remained in Malaysia, the second largest oil palm producer after Indonesia, and to obtain a fair price for palm oil among international edible oils.

Meanwhile, concerns over the pace of the global economic recovery too generally had some impact on commodities market with banks limiting the amount of credit extended to business to exercise prudence.

However, Teh said most oil palm producers could still be “laughing their way to the bank” with decent profits as cost of production was still low RM1,500 per tonne.

The MIDF Malaysia Equity Research Report said CPO had outperformed its closest rival, soyoil, as buyers of edible oils switched to the golden oil which is sold at a discount.

The spread between soyoil and palm oil continued to widen making the former more expensive for consumers.

As a result, palm oil is today consumed worldwide, is the vegetable oil with the highest level of penetration and many countries like India and China depend heavily on it.

As for the rubber market, a rise in crude oil prices as well as the tight supply situation in Thailand, Indonesia and Malaysia prompted rubber prices to rise by more than 20 per cent this year.

On the local market, SMR 20 touched its highest level of 954 sen per kg on Dec 22 while latex-in-bulk surged to its highest level of 601 sen per kg on Dec 7.

The high price prompted major consumer, China, to shy away from the market but dealers expect prices to weaken beginning next year before strengthening again as the global economic recovery gained momentum.

Analysts expect prices to be buoyed by the increase in tyre production and demand.

As for tin, the Kuala Lumpur Tin Market (KLTM) traded at its highest level in 14 months on Dec 21, with the metal touching US$15,740 per tonne in line with rising international metal prices.

According to analysts, demand for industrial tin was partly driven by the short supply and increasing investors’ appetite for metal-based assets. Source: BERNAMA by Christine Lim May Yu

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