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CPO price boost?

Publish date: Sat, 15 Jun 2024, 06:46 PM

KUALA LUMPUR: The slowdown in palm oil production may lead to a decline in inventory levels and positively impact global crude palm oil (CPO) price in the second half of the year, said analysts. 

According to the Malaysian Palm Oil Council (MPOC), CPO price will likely stabilise at RM3,900 per tonne this month. 

It said this was due to the expected drop in supply from Indonesia and Malaysia - the world's top two producers - in the second half of the year, coupled with an increase in exports.

However, it stressed that the anticipated price increase might hover around RM4,150 due to the United States' Agriculture Department (USDA) forecast of a surplus in oilseed production this year and in 2025.

"From January to May, Malaysia's CPO production increased by nine per cent year-on-year, or 626,000 tonnes, while exports rose seven per cent, or 393,000 tonnes," said MPOC.

By comparison, according to Indonesian Palm Oil Association (GAPKI) data. the country's CPO production fell by five per cent, or 647,000 tonnes, in the first quarter of the year.

Tradeview Capital Sdn Bhd fund manager Neoh Jia Man said the anticipated rise in exports indicated strong demand for palm oil, which was bullish for CPO price.

"We believe that stakeholders who consume a material amount of palm oil would seek to maintain an adequate inventory level and take advantage of the recent pullback in price to increase their stockpile.

"In addition, they could seek to diversify the supply sources or explore alternative vegetable oils," he added.

Neoh said the decline in Indonesia's CPO output was likely due to the El Nino phenomenon.

"It will have a material impact on global palm oil supply and coupled with the anticipated drop in output from Malaysia, we see upward pressure on global pricing." 

Meanwhile, MPOC observed that in the European market, the prices of rapeseed oil, sunflower oil, and soyabean oil increased by six, eight and seven per cent, respectively, in May, while CPO price fell by four per cent.

"As a result, the price premium of soft oils over palm oil increased from US$40 to US$115, which is expected to support the ongoing recovery of Malaysian palm oil exports," it noted.

Commenting on this, Neoh said the increased production and stockpile of oilseeds resulted in a greater availability of alternative vegetable oils.

"This will serve to cap the potential upside of CPO price as buyers could be encouraged to switch to cheaper alternatives.

"The broader availability of those alternative oilseeds will also temper the urgency by buyers to stockpile palm oil," he added.

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