CPO Price Rally to Cool Following 1Q14

KUCHING: While crude palm oil (CPO) prices are expected to be buoyant going into 2014, the price rally is likely to cool following the first quarter of 2014 (1Q14) as the oilseed industry is expected to be well supplied.

According to Alliance Research Sdn Bhd (Alliance Research), regarding CPO prices next year, as inventories have come off to more favourable levels over the course of 2013 and will likely close the year around two million mt, compared to 2.63 million mt at end 2012, the prices are expected to stay fairly buoyant going into 1Q14.

However, as per seasonality in 1Q, CPO production is expected to decline and prices might trend towards the RM2,800 per mt levels as inventories dip to 1.7 million mt.

“That said, we do not expect CPO prices to trend into the RM2,800-3,000mt range but instead taper back down as the export scenario going into 2014 is weak,” Alliance Research said.

The soybean market and other competing oils like rape seed oil and sun oil are forecasted to be well supplied in 2014 as weather has been favourable for crops. This will reduce overall dependence on palm oil in 2014.

“Coupled with our overall higher palm oil production outlook going forward, this development will be price negative,” it added.

However, it still sees average prices in 2014 to be higher than 2013 as biodiesel production could help lend support to prices and keep inventories manageable.

It should be noted that biodiesel mandates, if fully executed, will take up to four million mt out of Malaysian (up to one million mt) and Indonesian (up to three million mt) CPO inventories.

“Malaysia hopes to have a full B5 rollout by July 2014, and Indonesia is planning to step up to B10 from B7.5,” the research house highlighted.

Generally, 2013 has been a challenging year for the plantation industry, with CPO prices averaging below RM2,400 per metric tonne (mt) up to end November 2013.

“Sluggish prices during the year were largely due to a record high inventory at end December 2012 which took time to clear as production was exceptionally strong in 1H13, and sluggish exports which, although higher year on year (y-o-y), did not manage to keep up with the strong production,” the research house noted.

In fact, it was the stronger domestic consumption during the year which helped to bring inventories to a low of 1.65 million mt in July. However, since July, the weaker exports have pushed inventories back up to 1.98 million mt at as end November 2013.

Overall, Alliance Research goes into 2014 with a ‘neutral’ stance on the sector despite that it expects CPO prices to average roughly RM200 per mt higher than 2013 at RM2,600 per mt.

“Upward re-rating catalysts to our ‘neutral’ call would be if CPO prices surprise on the upside.

“This could be due to potential weather threats emerging in 2014, shortage in competing oilseeds, regulatory changes which are in favour of palm oil consumption, and a severe tree stress phenomenon like that of 2010 where industry wide production declined,” it noted.

Source : The Borneo Post

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