Summary of MPOC & BMD’s Joint POINTERS

Malaysian Palm Oil Council (MPOC) and Bursa Malaysia Derivatives (BMD) collaborated to present a ‘Special Edition’ of POINTERS which was organized form 22 – 28 June 2020. This POINTERS featured presentations from an esteemed panel of 10 speakers who shared their views on on industry developments, price outlook, the impact of Covid-19 on the demand in major markets and potential for palm oil in MENA and African region.

Datuk Dr. Sundram presented his paper on ‘Palm Oil Outlook Post Covid-19: Challenges and Expectations’. He gave an overview of Malaysian palm oil export performance in 2020, against the backdrop of the challenges posed by Covid-19 pandemic and crude oil price crash which impacted the prices and consumption of all major edible oils. Discussing the exports during the period of Jan – May 2020, Datuk Dr. Sundram explained that the total exports during this period is showing a decline of 24% which was primarily due to the imports of the Indian Subcontinent where the imports shrunk by 64%. Although the export volume in this period registered a decline of 24%, the decline in the value of exports during Jan – May 2020 period was only 5% when compared with the same period of last year. He added that MPOC is actively looking for emerging markets which could provide potential for the expansion of Malaysian palm oil exports. Sub-Sahara Africa, Middle East & North Africa and Asia Pacific were highlighted as regions of interest.

Dr. Sundram also shared price projection done by MPOC based on the Stock Usage Ratio (SUR) of oils and fats. According to our estimate, price of CPO may reach a high of RM 2,594 MT and low of RM 2,080 MT, depending on various factors like biodiesel mandates, demand recovery and crude oil prices.

On the price outlook, Dr. James Fry expects that the vegetable oil demand will be affected by COVID-19 pandemic and the Malaysia palm oil stock is expected to rise above 3 million MT by end of this year. He anticipates that Brent crude oil price will move towards USD50 per barrel or USD390 per MT while CPO prices will trend towards USD100 premium over Brent by the end of 2020. Thus, he expects that EU CPO prices to be slightly below USD500 per MT by the end of 2020. 

Mr.  Thomas Mielke also shared his view on the market and forecasted that the global oils and fats exports for 2020/21 is projected to rise by 4.5% or 4.2 million MT to 98.15 million MT from 2019/20 period. Meanwhile, global oils and fats consumption is projected to rise by 2.7% or 6.5 million MT to 241.2 million MT for the same period. Hence the accelerating growth of world oils and fats consumption and exports in the coming 2020/21 season is expected to increase the CPO price which averaged USD566.5 per MT in 2019 to USD636.5 per MT in 2020. 

Mr. Unnithan forecasted that the CPO price will move within a range of RM1,800 – RM2,400 per MT. In his views, demand for palm oil in key palm oil import destinations namely India, EU and China for 2020 will be lackluster in the face of COVID-19 crisis. On biodiesel, he commented that palm biodiesel discretionary blending with high POGO spread of USD249 per MT is not viable. 

Dr. Ahmad Parveez presented a paper on ‘Malaysian Palm Oil Industry Outlook and Biodiesel Mandates’. His presentation gave detailed overview of Malaysian palm oil industry performance during the period of Jan – May 2020. Almost all sectors of the industry including planted area, CPO production, FFB yield, oil extraction rate, palm oil imports / exports and stocks registered a decline. Dr. Parveez explained the challenges being faced by the biodiesel sector is facing with the existing crude oil prices. While discussing the way forward for he national biodiesel programme of Malaysia, he added that the B20 programme for transport and B7 for industrial sector will be fully rolled out by June 2021 and the total palm oil consumption in this programme will be 1.3 million MT.  he concluded that the CPO price will sustain its current level in the second half of 2020, supported by the resumption of B20 biodiesel program. Moreover, the recent Government initiative to exempt export duties of CPO, crude palm kernel oil and RBD palm kernel oil is expected to improve the export performance in the second half of 2020.

On regional performances, Cai Neng Bin’s presentation on ‘China’s Outlook on Oils and Fats Supply and Demand’, he estimated that soybean crushing is going to increase in 2019/20, and soybean oil supply is also expected to lead to marginal growth in overall oils & fats supplies. Policy Support to help the recovery of swine breeding activities by China, recovery & increase demand for protein supply among Chinese consumers and SBO rapid demand recovery after the pandemic are the main reasons behind the increasing crushing activity. Nevertheless, low stock of soybean, slower arrival of soybean from South America, and recent deterioration of China-US relations is expected to limit the US soybean supply in China. 

He also highlighted that palm oil stock has dropped significantly despite China’s RBD PL’s stable consumption at an average monthly level of 350,000 MT, and the peak monthly consumption in summer is 400,000-450,000. Low inventory is expected to support a high basis for PO spot price. Meanwhile, the low crude oil price has reduced the consumption of PO in biodiesel in China, despite the consumption in food sector remained stable. Overall, he has summarized that China’s oil & fats market structure is still influenced by import-oriented cost, but the low inventory situation is difficult to improve in the short term, thus the focus of ensuring supply safety in the medium and long term will benefit oil prices. 

On the EU Market, the presentation by Paolo Vergano focused on key issues affecting the marketing of palm oil but it was more specific about policies affecting palm oil. The paper highlighted the RED which sets mandatory national overall targets and measures for the use of energy from renewable sources to reduce emissions and to achieve the EU’s climate change and energy policy objectives. He stressed that Commission Delegated Regulation sets out specific criteria both for determining the high ILUC-risk feedstock which directly targeted to discourage the use of palm oil and distort the market, effectively amounting to de facto discrimination of palm oil-based biofuels. Another topic that is raised is the negative campaigns to reduce the use of palm oil allegedly for its negative environmental and/or nutritional implications which arguably illegal under EU law. In conclusion, he suggested that the palm oil industry should take back the initiative and own the narrative on palm oil vis-à-vis the EU, highlighting its many positive attributes and the industrial, environmental and nutritional advantages. 

On the MENA market, Mr Veysel Kaya presented on Turkey & Middle East & North Africa – Next Growth Frontiers for Palm Oil. According to Mr Kaya, MENA market has emerged as the new frontier for palm oil export destination with import volume exceeding 3 million MT in the recent year. Palm oil is being used for margarine, frying and other food applications. Turkey and Egypt are the leading importers of palm oil in the region. Inevitably, COVID outbreak has affected palm oil trade globally and MENA market is no exception. The tourism industry and HORECA sector are two industries being badly hit by the pandemic. Since the sectors are the main consumers of palm oil in the region, it has indirectly affect palm oil import into the region. However, the demand is expected to normalize in the coming months but subject to full recovery and exit of the pandemic with no second wave is coming back in September.

Abah Ofon, founder and chief strategist of 3XG UK Consulting Limited opened his presentation Covered African region with an overview of Africa’s CPO output, noting 2019 CPO production in Africa was recorded at 2.94 million MT consumption was at 8.69 million MT. However, CPO yields in Africa are well below the world average, due to extremely dry weather conditions and the outbreak of crop diseases. The low yield resulted in a situation in which demand had outpaced the supply. Mr. Ofon noted that while Africa contributes 12.1 % of the world’s CPO consumption, the continent accounts for 3.9% of world CPO output and this presents opportunities to penetrate the market. He also notes that Egypt and Kenya constitute a large and growing CPO market in Africa in addition to South Africa, Tanzania, Ghana, Ethiopia, Djibouti, and Cote d’Ivoire. Implementation of the African Continental Free Trade Area (AfCFTA) would also present opportunities in the sense that intra-continental trade within Africa is promoted. African countries such as South Africa, which has trade value-added products, will have access to a larger trade bloc. However, with the implementation of the agreement, rules of origin will be reinforced, and re-export activities will be reduced. In place of this, investments, or physical presence in the continent by the industry players are likely to enjoy stronger dividend in the long term. 

The presentations and videos of this ‘Special Edition of POINTERS’ can still be viewed on our website on this link: www.pointers.org.my

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