• Speakers on the second day of Bursa Malaysia’s Palm Oil Conference spoke mainly on outlook for the palm industry. All of the speakers were upbeat on the outlook for CPO price.

• James Fry of LMC International forecasts average CPO price in 2019F to be US$580/tonne (RM2,360/tonne) assuming an average Brent crude oil price of US$65/barrel. If average Brent crude oil price is US$60/barrel, average CPO price is estimated to be RM2,240/tonne in 2019F. The floor to CPO price is RM1,950/tonne. Fry said that crude oil sets a floor to CPO price and if the price difference with gasoil is large, CPO would be used to produce biodiesel.

• Fry expects world inventory of palm oil to fall by 1mil to 1.5mil tonnes in 2019F due to the implementation of B20 in Indonesia and B10 in Malaysia. In the long term, CPO price outlook is positive as NGOs have been successful in reducing new plantings of oil palm in Indonesia.

• Ryan Chen of Macquarie Commodities Trading (Shanghai) predicts average CPO price to trade between RM2,350/tonne and RM2,400/tonne in 2Q and 3Q2019 based on an average Brent price of US$65/barrel and exchange rate of US$1.00: RM4.06. He predicts China’s vegetable oil demand to grow by 1.9% each in 2018/2019F and 2019F/2020F. He thinks that China’s palm imports would improve by 14% to 6.2mil tonnes in 2019F due to the attractive price differential with soybean oil and rapeseed.

• He said that China’s palm imports have been falling since 2012 due to a few reasons. Although China’s GDP per capita has been rising, the country’s consumption of vegetable oils per capita has stagnated at 25kg/capita due to more consumption of meat. The increased consumption of meat resulted in higher requirements of meal to feed hogs and poultry. As a result, soybean imports rose and took market share from palm oil. Palm oil was also affected by the sale of rapeseed from China’s state reserves. Chen said that the amount of rapeseed in China’s state reserves has dropped from a high of six million tonnes to one million tonnes currently.

• Going forward however, Chen believes that there is limited upside to China’s meat consumption as China’s population is expected to peak in year 2025F and then decline. Hence, there would be less demand for soybean meal.

• Thomas Mielke of Oil World predicts that three months’ CPO futures price would reach RM2,350/tonne to RM2,450/tonne in the next six months. He believes that CPO inventory has peaked in Malaysia and Indonesia and from now until September 2019, stockpiles would decline. In spite of this, there will not be a price rally as there is ample supply. He forecasts CPO production in Indonesia to increase from 41.26mil tonnes in 2018 to 43mil tonnes in 2019F.

• Mielke is bullish on CPO in the long term. He said that global CPO output growth would slow down to 1.7mil tonnes per year from years 2025 to 2030 compared with 3mil tonnes per year from years 2005 to 2018. The slower production growth is due to stagnating industry FFB yield and a fall in new plantings of oil palm in Indonesia.

Source: AmInvest Research - 7 Mar 2019