RAM lowers crude palm oil price to RM2,200-RM2,400 per metric tonne

KUCHING: RAM has revised downwards its crude palm oil (CPO) price forecast to an average of RM2,200 to RM2,400 per metric tonne ( MT) in 2019.

This comes as CPO prices have been persistently weaker than expected, weighed down by strong production growth that has in turn elevated inventory levels.

“This is further compounded by concerns about the impact of the US- China trade war on demand for edible oils, a sizeable supply of vegetable oils, and the negative developments in Europe on the sustainability of oil palm cultivation and the use of this tropical oil in biofuel production,” RAM said in a statement.

“That said, we still anticipate a pick-up in demand from foodbased consumption growth and for biodiesel production, amid stable output growth.”

Local CPO production rose 10 per cent y- o-y in 1Q 2019, after having unexpectedly slowed down to 19.5 mil MT in 2018, the latter due to weaker yields. However, Indonesia registered a bumper crop of 47.4 mil MT last year and maintained a strong expansion of 22 per cent in January and February 2019.

“We expect both Malaysia and Indonesia to post modest singledigit production growth this year,” it added.

“On a broader perspective, the US Department of Agriculture estimates the supply of vegetable oils will expand by three per cent in 2018/2019. The ample supply of vegetable oils will exert some downward pressure on CPO prices.”

On the demand front, RAM saw that Malaysia’s crude and processed palm oil exports advanced eight per cent y- o-y in 1Q 2019, after a flat performance in 2018. The improvement was underscored by more robust demand from India, China, Pakistan and the US.

Soft CPO prices and zero export duties since September 1, 2018 had likely triggered purchases of this tropical oil, it said, as had India’s reduced import duties on CPO and refined palm oil products, effective January 1, 2019.

Meanwhile, Indonesian exports of palm products went up three per cent in 2018, followed by another 15 per cent y- o-y in January and February this year. Demand for CPO is expected to remain supported by food-based consumption growth and demand from biodiesel producers.

“As at end- March 2019, Malaysia’s inventory level had increased to 2.9 million MT. Conversely, Indonesia’s stockpile had diminished 29 per cent yo-y to 2.5 million MT as at endFebruary 2019, attributable to robust external and domestic demand.

“Notably, Indonesia’s move to extend the use of the B20 biodiesel to non- subsidised vehicles since September 1, 2018 had substantially boosted its consumption of this commodity to 3.9 mil kilolitres last year.

“Indonesia has allocated 6.2 million kilolitres of biodiesel to the B20 programme in 2019, which will support CPO demand.”

Malaysia began implementing the B10 programme for the transportation sector in phases in December 2018; the B7 scheme will be executed for the industrial sector in July 2019. The programmes in both countries could use up to 6.5 million MT of CPO.