CPO expected to stay soft as production outpaces demand
KOTA KINABALU: Proces of crude palm oil (CPO) averaged RM2,467 per metric tonne (MT) in the first quarter of 2018 (1Q18), falling about 22 per cent y-o-y – in line with RAM Ratings’ expectations of price weakness.
Notably, RAM saw that prices were largely above RM3,000 per metric tonne (MT) in 1Q17 due to low industry stock levels in the aftermath of El Nino weather conditions in 2015/2016.
The local palm oil inventory level stood at 2.17 million MT as at end-April 2018 – a substantial 35 per cent higher y-o-y.
“We maintain our full-year price expectations at RM2,300/MTRM2,500/MT for 2018 as production is seen to outpace demand,” it saidi n a statement yesterday.
This comes as Malaysia clocked in CPO production of 6.06 million MT in the first four months of 2018 (4M 2018) (+9 per cent y-o-y).
Elsewhere, Indonesia’s output is still strong, rising 23 per cent y-o-y to 6.76 million MT in the first two months of 2018 (2M 2018), although expected to moderate in the coming months.
The Malaysian Palm Oil Board projects local output to rise 3 per cent y-o-y to 20.5 million MT this year, while the Indonesian Palm Oil Association anticipates 10 per cent y-o-y growth in the production of CPO and palm kernel oil.
“On the demand front, Malaysia posted a strong exports performance, with palm oil exports climbing 20 per cent yo-y in the first four months of 2018, supported by demand from India, China, Pakistan and the Netherlands.
“Its exports performance had likely benefited from the Government’s temporary suspension of export taxes from 8 January 2018 to end-April 2018. “Strong demand has outpaced the increase in production, resulting in a m-o-m downtrend in the local inventory level in the past few months.
“Exports are, however, expected to weaken going forward due to the resumption of the export tax this month and the steep hike in India’s import duties on palm oil, effective 1 March 2018.
“Meanwhile, Indonesian CPO exports slipped 3 per cent y-o-y in 2M 2018 due to weaker demand from China, the EU and India.”
Moving on, the US Department of Agriculture projects global supply of vegetable oils to advance five per cent in 2017/2018.
Production of soybean oil is estimated to grow four per cent in 2017/2018, and will continue to pose keen competition to CPO within the global vegetable oil market. This is compounded by the narrowing price premium of SBO to CPO in recent months.
On the biodiesel front, the Malaysia Biodiesel Association expects local biodiesel production to fall from 720,000MT in 2017 to 500,000MT this year due to weak export demand.
This follows the EU’s removal of anti-dumping duties on certain Indonesian biodiesel producers that had been in place since 2013, after the conclusion of legal proceedings. For the same reason, Indonesia is looking to boost biodiesel exports.
The republic is also hoping to increase biodiesel production to 3.5 million kilolitres this year by extending its usage to the rail and mining sectors.
The higher prices of crude oil of late may further lend some support to discretionary biodiesel blending as subsidies are no longer required at current gas oil vs biodiesel price spreads.