General optimism on CPO price outlook from POC2019
KUALA LUMPUR: Speakers at the at the three-day Palm and Lauric Oils Conference 2019 in Kuala Lumpur (POC2019) generally painted a rosy outlook for crude palm oil (CPO) price.
Among the speakers, Minister of Primary Industries Teresa Kok perdicts for CPO to reach a full-year average of RM2,200 per metric tonne (MT) this year.
United International Enterprises director and board member Harald Sauthoff foresees a wide range of RM1,950 to RM2,400 per MT with a full-year average of RM2,180 per MT this year. He expects to see normalised growth rates for palm oil production in Indonesia and Malaysia after the 2018 supply “tsunami”.
Another prominent figure in palm oil is Dr James Fry, chairman of LMC International who expects to see strong palm oil demand this year, driven by higher biodiesel blending mandate adopted in Indonesia and Malaysia, which will exceed the production growth.
His CPO price outlook is pegged to the Brent crude level, which would see FOB price of USD550 per MT (RM2,240) if crude oil price averages at US$60 per barrel and average FOB price of US$580 (RM2,360) if Brent settles at US$65 per barrel.
Meanwhile, Thomas Mielke, executive director of ISTA Mielke GmbH, Oil World, sees a repercussions on worldwide soybean picture following a sharp decline in Chinese soybean crushing activities.
He foresees a higher CPO futures for Malaysia at RM2,350 to RM2,450 per MT in the next four to six months and US$500 per MT (RM2,035) for Indonesia.
Generally, most industry experts have a bullish view on 2019 price outlook as they expect to see easing pressure from the record high inventories last year, led by stronger biodiesel demand in Malaysia and Indonesia and a slowdown in production growth after seeing a bumper harvest over the last two years.
However, researchers with Public Investment Bank Bhd (PublicInvest Research) noticed that most bullish calls on the CPO price are only up to June as high inventory pressure might make a comeback during the high production cycle in the second half (2H).
“Interestingly, this is the first we see a wave of positive views from almost all the speakers,” it said in a note yesterday.
“Despite the bullish outlook by most speakers, we notice that the key driver for higher palm oil demand hinges on higher biodiesel blending mandate in Indonesia and Malaysia, indicating that there is a potential downside risk to their forecasts in the event the biodiesel demand is not up to the their expectations if there is drastic change in crude oil movements due to deteriorating global economic activities and rising US shale production.
“Another risk factor is stronger ringgit on the back of a healthier financial budget and better-thanexpected trade numbers, which could potentially cap the upside for CPO prices in Malaysia.”
To note, CPO prices had a good start this year after dropping to a two-year low of RM1,966 per MT in November last year. Since then, it has recovered more than 9.7 per cent to RM2,157 per MT as investors saw the worst was over as inventory levels started showing signs of easing in early January.
CPO futures shot up to as high as RM2,327 per MT before paring down to the current level, PublicInvest Research said.
“Despite the various bullish calls on the CPO price outlook, we remain doubtful on the potential upside given various headwinds in the near-term,” it said. “Firstly, CPO inventories have less than three months to pare down to an optimal level before seeing a seasonal rise in production in June onwards.
“A higher inventory level would put tremendous pressure on CPO prices. Another key factor is the slowing pace of US interest rate hike as well as healthier financial budget on various new measures to bring in more government income, which might see a stronger Ringgit in the near-term.
“A strengthening ringgit will cap the upside on CPO prices and affect foreign purchase due to weaker purchasing power. Lastly, a sudden reversal in oil prices due to a slowdown in economic activities as well as continuous high US shale oil production could give oil price another hit.”