CPO Price Likely to Recover When Stocks Normalise to Two-million-tonne Level

PETALING JAYA: Crude palm oil (CPO) price is expected to recover once palm oil stocks normalise closer to the two-million-tonne level.

Data from the Malaysian Palm Oil Board indicate that Malaysia’s palm oil stocks reached a six-month low in February, falling by 5% to 2.44 million tonnes. CIMB Investment Bank Bhd analyst Ivy Ng said the declining stockpile was positive, as it suggested that the low price had spurred higher demand for palm oil.

“We remain positive of a recovery in CPO prices once palm oil stocks normalise closer to the two-million-tonne mark, and when plans to introduce up to 10% biodiesel blend by mid-2014 take off,” she said.

Ng said the bank’s current average CPO price forecasts of RM2,840 for 2013 and RM3,000 for 2014 were under review, as it would be updating them for its ringgit assumption forecasts and new government policies relating to biodiesel and edible oils.

The average CPO price for February 2013 rose 7.7% month-on-month (m-o-m) to RM2,391 per tonne. However, the average CPO price achieved still represented a decline of 23.1% year-on-year.

“The United States’ re-introduction of its biodiesel tax credit of US$1 per gallon for 2013 is also expected to boost the demand for biodiesels and edible oils in the United States. Other potential catalysts for the CPO price include plans by the Indonesian government to raise biodiesel mandates or subsidies in the country, and a potential slowdown in palm oil supply growth from Malaysia in second half 2013.”

The average CPO price for Feb 13 rose 7.7% m-o-m to RM2,391 per tonne, as higher exports and weaker m-o-m production boosted the expectation of lower CPO stocks and improved sentiment for CPO prices. However, the average CPO price achieved on Feb 13 represented a decline of 23.1% y-o-y.

UOB KayHian analysts also said exports to China might slow down going forward due to the high palm oil inventory in China, but greater demand might come from biodiesel production in the European Union.

“We expect output to rise 6% m-o-m in March 13 and export volume to decline by 5% m-o-m. We expect CPO’s attractive pricing against soybean oil and crude oil will continue to keep demand healthy,” they said.

Source : The Star

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