Wild ride for commodities in 2017 on shift in dynamic, extreme weather
KUALA LUMPUR: It has been a wild ride for the commodities sector in 2017 on the back of the shifting dynamics of the global market coupled with weather extremities.
Malaysia’s main trading commodities, namely palm oil, rubber and tin, were not spared the fluctuations.
The palm oil industry which celebrated the 100th anniversary of its presence in Malaysia, faced a challenging year, with some analysts expecting the trend to continue into 2018, at least for the short term.
The industry was seen struggling with labour issues, a fluctuating ringgit, declining demand by key importers over the longer term, as well as a fallout from the European Union’s ( EU) ratification of an import ban on palm oil- based biofuels.
On average, throughout 2017, crude palm oil ( CPO) prices ranged between RM2,400 and RM2,900 per tonne and as of Dec 13, fell by 20.8 per cent to a yeartodate, RM2,461.
Despite the many challenges faced, prices were capped from further decline by the El Nino and La Nina phenomena.
“Although the current weak La Nina conditions are slated to last till early 2018, there appears (to be) little impact on Asia’s palm oil production, as plantations staged a strong recovery, given the low base year seen in 2016,” according to OCBC Bank in a note.
The bank said its production model seemed to suggest that Malaysia could potentially see a 14.0 per cent on-year growth in output for the whole of 2017, a tat lower versus its initial outlook of 15.0 per cent.
“We also foresee an upside in palm oil prices appearing to be limited into 2018, while the stronger production of late and tepid demand will likely see Malaysia’s inventory touching its 2.6 million tonnes handle, the highest since Dec 2015,” it added.
The bank noted that the upside risks in output into 2018 could also be seen as Europe positioned itself to replace palm oil imports with domestically grown vegetable oils.
On Nov 28, the Industry, Research & Energy Committee of the EU’s Parliament voted to endorse a ban on palm oil biofuels in Europe, an action that went against EU-Malaysia trade relations.
Minister of Plantation Industries and Commodities, Datuk Seri Mah Siew Keong, was reported as saying that the government would be compelled to take every necessary action to protect the rights of 650,000 smallholders and secure the future of the palm oil sector that has lifted millions of Malaysians out of poverty.
“The move to exclude palm oil biofuels from the EU’s renewable energy list is a step backward for EU-Malaysia trade ties.
“Taken together with the vote from the European Environmental Committee in October 2017, this clearly shows the EU intentionally plans to restrict the imports of palm oil biofuels,” he said.
Malaysian Palm Oil Council Chairman, Datuk Lee Yeow Chor said there was still time to overturn the EU’s proposed plan to ban palm oil, as it was still at the proposal phase with a grace period of five years before being finalised.
“The final decision will likely be made in 2021.Therefore, Malaysia and Indonesia, two of the world biggest palm oil producers, should voice their thoughts of not agreeing with the proposal,” he said.
To recap, the European parliament had urged the trading bloc to avoid deforestation resulting from oil palm planting, alleging that expansion of plantations in Malaysia and Indonesia had seen farmers using illegal methods to clear land that destroyed rainforests and habitats of animals, while causing a severe haze that blanketed parts of Asia.
If the proposed ban by the EU is approved, it will likely impact the Malaysian palm oil industry as the EU is Malaysia’s biggest export destination, accounting for about 13 per cent of shipments of palm oil and palm-based products last year.
Currently, Malaysia and Indonesia account for over 80 per cent of the world’s palm oil production.
Besides the EU, Malaysian palm oil is also exported to United States, Japan and China for use in the production of biodiesel.
As for the performance of palm oil during the year, exports are expected to exceed RM70 billion versus RM67 billion last year.
For 2018, CPO prices could average between RM2,600 to RM2,700 per tonne and rise further on the back of sustained global growth, which would invariably lift global CPO demand, against the backdrop of recovering crude oil prices and the La Nina-induced supply shortfall.
Throughout the 100-year journey, the palm oil industry has contributed greatly bridging the socioeconomic gap of Malaysians.
But, to ensure its survival for another 100 years, it would need the sustained efforts of the government, including providing the Malaysian Sustainable Palm Oil (MSPO) certification for oil palm planters and mills.
Compared to the Roundtable on Sustainable Palm Oil or RSPO, the MSPO was introduced with the aim of ensuring all planters and processing facilities are in line with globally-accepted environmental requirements.
Turning to the rubber industry, the commodity was similarly affected by low global commodity prices, surging production and strong US dollar.
However, the lower ringgit against the strong greenback of late, somewhat improved the exports of rubber gloves in the first half of 2017, rising 25 per cent to RM7.95 billion compared with RM5.28 billion in the same period of last year.
According to Mah, the high export number was a signal for the rubber glove sector to be on track for an outstanding exports of RM16 billion for the full year, which is higher by 20 per cent from the RM13.28 billion recorded in 2016.
Meantime, the price for tyre grade SMR 20 declined to its lowest at 561.50 sen on Nov 30, 2017 from a high of 1,059.50 sen recorded on January 31.
As at October 2017, Malaysia’s natural rubber ( NR) production rose 18.5 per cent to 67,403 tonnes, while stocks were up 6.5 per cent to 206,593 tonnes.
During the month, domestic consumption was at 42,753 tonnes, while exports stood at 47,162 tonnes to major destinations, namely China, Germany, the United States, Iran and South Korea. — Bernama