RAM Ratings revises average CPO price forecast upwards
KUALA LUMPUR: RAM Ratings has raised its average full-year CPO price expectation to RM2,700 to RM2,900 per metric tonne (MT) – up from RM2,300 per MT to RM2,500 per MT previously.
In a statement, it said, to date, CPO prices have outperformed its expectations as production recovery was not as strong as expected.
A larger soybean oil (SBO) to CPO premium had also kept prices elevated.
“We expect these factors to continue to support CPO prices for the remainder of the year,” it opined.
However, it commented, “In our view, the current strong prices cannot be sustained next year. 2018 is expected to begin with a larger CPO stock pile while production recovery will finally reach its full potential.
“Competition from an ample supply of SBO will also keep CPO prices in check. As such, the price of CPO is anticipated to average lower at between RM2,300 per MT and RM2,500 per MT in 2018.”
It explained, “Recovery of CPO production from the effects of one of the strongest El Nino weather episodes remains evident, albeit slower than market expectations.
“In 2Q17, output in Malaysia rebounded 18 per cent y-o-y to 4.71 million MT. In the 8 months to August 2017, total CPO produced was 12.35 million MT (14 per cent y-o-y), with local inventory levels closing high at 1.94 million MT at end-August 2017.
“Indonesia’s total output in 5M 2017, meanwhile, came in at 14.82 million MT (18 per cent y-o-y), with recovery the strongest from April to May 2017 (33 per cent y-o-y). In line with the seasonal pick-up, output in 2H17 is anticipated to be higher.
“Most plantation companies within our rated portfolio expect production to peak in 4Q this year instead of the usual 3Q.”
Meanwhile, it noted that ;ocal palm oil exports rose a mere two per cent y-o-y, supported by increased exports in May and June for the Ramadan festival.
“Aside from these two months, Malaysian export figures have remained weak. Exports to India are envisaged to continue to decline following the Government of India’s recent move to hike the import duty on CPO to 15 per cent from 7.5 per cent.
“In contrast, exports from Indonesia jumped 29.2 per cent y-o-y to 12.92 million MT in 5M 2017, supported by heightened demand from the US and the EU,” it said.
On the biodiesel front, low crude oil prices have rendered the former commercially non-viable, given the need for continued subsidies, RAM Ratings noted.
“For the full year, local biodiesel production growth is expected to be, at best, flat y-o-y given the delay in the adoption of the B10 biodiesel mandate.
“In Indonesia, total production of biodiesel for the year is anticipated to be slightly lower than last year’s 2.7 million kilolitres and way below the 2017 target of 4.6 million kilolitres,” it said.
RAM Ratings also noted that the US Department of Agriculture had recently reduced its global soybean production estimate to 348.4 million MT for 2017/2018.
“Nevertheless, SBO output is forecasted to be 4 per cent higher y-o-y at 56.13 million MT, while the SBO to CPO price premium had reached US$181 per MT in August from a 30-month low of US$61 per MT in February,” it added.
We expect these factors to continue to support CPO prices for the remainder of the year. RAM Ratings