CPO Price Sentiment for 2021

The 2nd Edition of MPOC’s Palm Oil Internet Seminar (POINTERS) 18th – 24th October 2021

The second edition of POINTERS by MPOC was held from 18th to 24th of October 2021. A panel of experts in this POINTERS seminar were engaged to provide updated assessments of the global edible oil market. Additionally, the experts shared their views on the trend of the CPO prices up to the third quarter of 2021.  The experts also shared their insights on the possible factors that influence CPO price trend for the final three months of year 2021.

Review on the fluctuation of the CPO prices

The POINTERS 2021 began by divulging into the price trend of CPO for the period of January – September 2021. The CPO prices rallied high in Q1 and Q2 of year 2021. This was spurred by the recovery of the global edible oil demand. The palm oil industry has greatly benefited from the increasing demand of the edible oil, particularly from the HORECA sector. The global HORECA sector had been severely affected from the prolonged lockdowns due to the Covid-19 pandemic. There has been high demand from major importing countries like India, Iran, Turkey, and Kenya due to their domestic stock replenishment. Additionally, local demand has also increased due to Eid festivities, high uptake of processed foods, and soft reopening of industries and businesses under lockdown from the Covid-19 pandemic.

Sentiments were affected in Q2 by expectations of higher sunflower production from Ukraine, as well as from the planting of soybean from the USA. Another factor that contributed to the price consolidation in Q2 is the speculation on the Indonesian levy cut, which could lead to higher CPO exports. As for Malaysia, concerns over low stocks of CPO also contributed to the trend of edible oil prices in Q2. In June 2021, the stock of Malaysian CPO was below 1.7million MT. 

All four major oils have had consistent high value in Q3 with the rapeseed oil recorded the highest average price at USD1,492/MT. Whereas the Q3 average prices for palm oil, soybean oil and sunflower oil were at USD1,196/MT, USD1,431/MT and USD1,340/MT, respectively. The price discount of soybean oil to palm oil in Q3 of year 2021 was recorded at USD250/MT. The price discount of the two oils increased by USD81/MT. As for the palm oil, the price sentiment in the third quarter was affected by seasonal peak production of oil palm from August to October.

The global edible oil prices have begun to recover in the final quarter of year 2021. The prospects of improved global edible oil production especially in the production of the sunflower oil is a significant driver. The price sentiment shifted and turned positive on the news of lower Malaysian palm oil production, weaker ringgit and rising brent crude oil prices.

The fourth quarter of 2021 – The Bullish Factor

Entering the fourth quarter of 2021, an array of bullish factors has been observed to support the higher palm oil prices and imports. These factors include the continuous recovery of the global economy, the decline in palm oil production in Malaysia and edible oil duty cuts in India.

In China, continued recovery from the COVID pandemic and low edible oil inventories will continue to drive stronger imports for edible oils including palm oil in the final quarter of 2021. China traders will likely import more palm olein due to lower domestic availability of soyabean oil as the poor breeding margin in the swine sector is expected to lower China’s soybean crushing activities. For the year 2021, MPOC forecasts that the total palm oil import for China will be at 6.8 million MT, an additional of 300,000 MT more than the palm oil import for the year 2020.

Recent changes in import policy and duty cuts in India have also contributed to the current price dynamics of the palm oil. The removal of the ban on RBD palm olein imports for the period from June to December 2021 and the reduction in import duty for all edible oil including palm oil are likely to spur even stronger palm oil demand in India in the last quarter of 2021.  The import duty reduction is targeted at reducing edible oil prices which has risen by 14% in February 2021 to a high of 35% in June. For year 2021, MPOC forecasts that the total palm oil import in India will be 8.7 million MT of palm oil, 1.18 million higher than the preceding year.

Additionally, the setback in Malaysia’s palm oil production is largely affected by the severe shortage of labour in the country. This is expected to have a positive impact on the CPO prices. The production of Malaysian palm oil from January to September 2021 has been recorded to 13.31 million MT. The production fell by 8.8% y-o-y, equivalent to a dip of 1.28 million MT.

The MPOB forecasts that the CPO production for year 2021 will decline by 6.0%, or 1.14 million MT to 18million MT. As a result of lower CPO production relative to year 2020, MPOB also forecasts that the export of Malaysian palm will drop by 6.2% y-o-y. However, the export revenue is expected to increase by 29.7% due to extremely high CPO prices that have observed, particularly for second half of year 2021.

Source: MPOB

The fourth quarter of 2021 – The Bearish factor

The panel of experts also discussed factors which may have a bearish impact on the current prices sentiment. Based on a forecast by Mr. Thomas Mielke, US would have a bumper crop in 2021 with the production forecast to raise by 6 million MT to 121 million MT and this might have a direct impact on the current price rally of CPO.

The panel of experts also deliberated that it will be challenging for Indonesia, the largest producer of palm-based biodiesel in the world, to produce its targeted level of biodiesel of around 7.0 million MT if the FAME and Gasoil spread goes higher than the current level of approximately INR5000 per litre.

Another bearish factor that has been identified is the decline of palm oil imports by the EU nations.  The palm oil imports by the EU nations is expected to be more sluggish compared to the preceding year. An early adoption of RED II by several EU nations is affecting the imports of palm oil into the region. According to MPOC, the number of EU nations announcing early adoption of RED II is gradually increasing. Several EU nations such as Austria, France, Belgium and Germany have adopted RED II ahead of the date of implementation which starts in year 2023. For year 2021, MPOC forecasts that EU will import around 7.8 million MT of palm oil, approximately 400,000 MT less that the region’s 2020 imports of 8.2 million MT.

The price sentiment of CPO in the fourth quarter of 2021 may possibly be affected by global output of oils and fats that has been projected to be higher for the 2021/2022 season. For 2021/22 season, Mr. Thomas Mielke forecasts that global oils and fats production will increase by 8 million MT which is the largest growth in the last four years. With this sizeable increase in oils and fats production, the stocks of edible oil is expected to rise and subsequently weaken the sentiment of the CPO prices.

The Outlook of the CPO Prices

Despite the above-mentioned bearish factors that may have an impact on the CPO prices in the first quarter of 2022, several of the panel of experts  in POINTERS predicted that the average CPO price will continue to be high in the next two months. The MPOC forecasts that for the entire 2021, CPO prices will trade within the range of RM3,517/MT to RM4,745/MT with an average of RM4,131/MT.  Meanwhile, MPOB forecasts that the CPO will trade at an average price of RM4,100/MT for year 2021. As for the CPO price outlook for the final quarter of 2021, Oil World is of the view that the current high prices of palm oil and other vegetable oils are not sustainable. However, should the South American soybean production prospects deteriorate significantly, the prices of CPO have potential to remain high in the current price range. The weakening of the CPO price will be moderated by lower production of CPO in Malaysia.

(Details of presentation and discussion can be viewed on the POINTERS website http://www.pointers.org.my. For further enquiry, you may contact the author, Mr. Lim Teck Chaii at lim@mpoc.org.my)

Prepared by Lim Teck Chaii  

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