RAM Ratings: Prices to slip further to RM2,300

KUALA LUMPUR: RAM Ratings expects palm oil prices to slide further to RM2,300 per tonne in the second half of this year, having averaged at RM2,421 per tonne in the first half, as global supply continues to surpass demand.

In its notes to bondholders and other stakeholders yesterday, RAM Ratings analyst Karin Koh said palm oil prices had dipped to about RM2,100/MT of late.

This follows the softer demand, higher production and concerns among vegetable oil traders over the trade war between the United States and China.

“Malaysia’s palm oil production inched up two per cent to 8.92 million tonnes in the first six months of this year. Indonesia similarly saw palm oil output rising 2.4 per cent to 18.37 million tonnes in the first five months of this year,” she said.

“That said, we are expecting prices to be sustained between RM2,200/MT and RM2,400/MT in the second half on the back of demand support from biodiesel and slowing oil palm harvest towards the end of the year.”

She said India raising import duties on rival soyabean oil, effective June 14, had allowed for more purchases of palm oil from Malaysia and Indonesia.

Also, the large price premium of over US$200 (RM816) per tonne for soyabean oil and palm oil is triggering more purchase of the cheaper palm oil.

As at the end of June, Malaysia’s palm oil inventory stood at 2.19 million tonnes – a stark contrast to a year ago which faced shortage, following the El Nino phenomenon.

Indonesia’s inventory level hit 4.76 million tonnes at the end of May, attributable to robust production growth and sluggish exports.

On a broader note, the US Department of Agriculture expects global supply of vegetable oils to advance five per cent in 2017/2018, and three per cent in 2018/2019.

Koh said Indonesia’s B20 biodiesel mandate in both subsidised and non-subsidised vehicles effective from September 1 would support palm oil prices to trade higher than the current RM2,200 per tonne.

“If effectively implemented, Indonesia’s biodiesel consumption is estimated to come in at four million kilolitres this year, compared with 2017’s 2.5 million kilolitres.”

On a positive note, she said Indonesia was planning to accelerate the use of its higher-blend B30 biodiesel next year, if road trials of trucks and trailers using the B30 blend showed good results.