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Palm Oil Prices Expected To Trade Between 3500 – 4000 Riggint Per Tonne; Analysis Report

ANALYSIS REPORT: Crude palm oil (CPO) prices are expected to trade between RM3,500 and RM4,000 per tonne this month, as bearish stock levels are matched by fears over the monsoon season impacting production levels in the final quarter of the year.

Analysts added that the decision by the Organisation of the Petroleum Exporting Countries (Opec) and allied non-members to cut crude production by two million barrels a day to boost crude oil prices provided support to the vegoil market including CPO.

“The CPO price now is mainly driven by external support of higher crude oil and rising soyoil but restrained by higher palm supply,’’ Singapore-based Palm Oil Analytics’ owner and co-founder Sathia Varqa told StarBiz.

The benchmark CPO futures (FCPO) contract on Bursa Malaysia Derivatives closed RM59 higher at RM3,701 a tonne yesterday as traders said fears of the La Nina weather phenomenon with above average rainfall could lead to flooding and a drop in production levels in major producing areas.

The FCPO contract tested a high of RM3,806 and a low of RM3,620 in intraday trading, but fears of bearish demand supply fundamentals weighed on prices.

CGS-CIMB Research forecast the local CPO inventory level to increase by 10.4% month-on-month (m-o-m) and 32.4% year-on-year (y-o-y) to 2.3 million tonnes by end-September due to higher output. Historically, peak production months for Malaysian palm oil are September and October.

“Our estimate of 2.3 million tonnes for the September palm oil stock level in Malaysia is 9.5% above the 10-year historical September average of 2.1 million tonnes,” said the research house in a report yesterday.

It forecast that on a m-o-m basis, palm oil exports likely rose 9.4% but fell 11% y-o-y to 1.42 tonnes in September.

“The stronger m-o-m palm oil exports from Malaysia could be due to CPO’s more attractive price versus the price of soybean oil,” said CGS-CIMB Research.

Varqa said while the inventory level was high, production also moderated mainly due to the labour shortage.

“In terms of CPO stockpiles, Malaysia is at a three-year high and poised to end the year at above two million tonnes and start 2023 with an elevated beginning stock. However, the production of CPO has been suboptimal due to the labour shortage,” he said.

Recently, Indonesia stated it may extend the palm oil levy until the end of the year, which would have otherwise ended on Oct 30, 2022. CGS-CIMB Research noted that this would further increase shipments of palm oil from Indonesia and support local fresh fruit bunch prices at the expense of Malaysian exports.

A fixed CPO reference price of US$792 (RM3670) per tonne was announced by Indonesia for the period Oct 1 to Oct 15, 2022. This will lower the palm oil export tax to US$33 (RM151) per tonne versus US$52 (RM241) per tonne during Sept 16 to Sept 30, 2022.

“This would place Indonesia’s export tax lower than Malaysia’s RM322 per tonne, based on an 8% duty at a reference price of RM4,033 per tonne for Oct, 2022,” said CGS-CIMB Research.

On this note, Varqa said competition from the Indonesian palm oil market was here to stay and the outlook of Malaysian CPO exports are dampened.

“Indonesia’s aggressive export policy since May has displaced Malaysia’s market share. This will continue until stock levels normalise to four million tonnes sometime in January 2023 from the current six million tonnes. However, a full reopening of the Chinese economy will offer respite to Malaysian exporters,” he said

Local CPO exports should be sustained and stocks are likely to move lower on the back of the reopening of China’s economy coupled with a weak ringgit and wide CPO discount to soyoil, he added.

Varqa expects soyoil to continue seeing higher growth compared with other edible oils.

“It was a great bin busting crop year for rapeseed from Canada and Australia, which is recovering from drought-stricken losses in the previous marketing year. However, it was not a great year for European sunflower seed producers due to adverse weather conditions. Soybeans will continue to see higher growth ahead,” he said.

CGS-CIMB Research projects the CPO price to trade within the range of RM3,500 to RM4,000 per tonne this month.