Strong turn-up for POC 2013. We attended the annual Palm & Lauric Oils Conference - Price Outlook (POC) 2013 at Shangri-la Hotel in Kuala Lumpur recently. We gathered that the conference was well attended with 2,000 participants from the oils and fats industry across 50 countries. The year's theme - "Price Volatility - Ride It, Manage It" - reflects the volatile CPO price movement and highlights the importance of business to manage the price volatility to ensure sustainable earnings.                 

MPOC CEO expects CPO to trade between RM2500-RM3200 per mt in 2013. Malaysia Palm Oil Council (MPOC) CEO, Tan Sri Datuk Dr Yusof Basiron believed that the 2013 Stock-To-Usage ratio for CPO should decline and this should lead to better prices. He also thought that the current low CPO prices were caused by the temporary supply imbalance, which has been wrongly speculated as reduced demand. He believed that Malaysian and Indonesian biodiesel programmes could stabilise CPO prices and suggested that the bulking and shipping infrastructure should keep up with recent supply expansion during the peak CPO production months.

However, BASF's Mr. Harald Sauthoff was bearish and expected a 2013 average CPO price of RM2200 per mt. BASF Personal Care & Nutrition's Vice President for its Global Procurement Natural Oils and Oleochemicals division, Mr. Harald Sauthoff, however, believed that the CPO price range will be in the range of RM1950-RM2500 in 2013. He believed that the strong CPO supply growth in 2013 would pressure prices as the market demand for this extra supply cannot be generated fast enough. In addition, he believed that the huge discount of CPO against soybean oil at US$300/mt suggested that all possible substitution have been executed. He also highlighted that there are structural issues in government regulations which limit the free flow of palm products.

What do we think?Our average CPO prices forecast for 2013 at RM2500/mt is more optimistic than Mr. Harald Sauthoff as we believe that CPO prices should strengthen in the next three months as supply remain low due to seasonal reason and demand picks up as Northern hemisphere becomes warmer. This should allow palm oil to become usable again and likely to become the preferred substitute to other vegetable oils due to its cheap price. Note that palm oil tends to solidify in cold weather. However, we are less optimistic than MPOC possibly due to our expectation that the full implementation of biodiesel programmes may only become significant after 2013.

Source: Kenanga