Crude oil, CPO steadily up
Analysts optimistic due to stability in the commodities market
PETALING JAYA: The commodities market, especially crude oil and crude palm oil (CPO) has been climbing steadily in the final quarter of 2019.
The markets are seeing some stability after months of declines which occurred owing largely to an oversupply situation which had caused an imbalance.
Analysts are optimistic that the markets are expected to continue to look better, at least for now.
The three-month CPO future closed at RM2,398 on Friday, its highest since June 6 last year at RM2,394.
The price has soared 13.06% on a year-todate basis and as far as the outlook for 2020 is concerned, analysts are expecting CPO prices to average around RM2,300.
There are a few reasons why Malaysia’s CPO prices would improve and stabilise at that level next year and it revolves around having more demand than supply.
Also, it is less than three months away to January where Indonesia will need to fulfil its mandate or implementing the biodiesel programme with a 30% bio-content, known as B30.
This is to increase palm oil consumption locally in Indonesia and to reduce energy imports.
The move will see a growth in demand globally and this would then allow Malaysia to up its export game.
Indonesia has always been the top palm oil exporter with a market share of around 55% while Malaysia plays second fiddle with around 29% of the global palm oil exports.
India is the largest palm oil importer in the world. It imported some 9 million tonnes last year at around Us$5.5bil (Rm23.02bil).
Figures from the Malaysian Palm Oil Council showed that Malaysia exported 2.51 million tonnes to India last year, which accounts for around 15% of Malaysia’s total palm oil exports.
While there seems to be threats of boycott on Malaysia’s palm oil due to the criticisms by Prime Minister Tun Dr Mahathir Mohamad towards India, industry observers are brushing it off as speculations.
The Solvent Extractors’ Association of India, which represents oilseed crushers, advised its members not to buy palm oil from Malaysia while Tamil Nadu Congress Committee, a political body, has urged Prime Minister Narendra Modi government not to reduce palm oil imports from Malaysia.
To date, the Indian government has yet to state its stance on the matter.
Besides India, Malaysia also exports palm oil to over 170 countries, among which the major exports were to China, Pakistan and the Netherlands.
Other than that, CPO prices are also expected to rise on the back of lower fertilisation and dry weather which will affect the supply.
Maybank Investment Bank Research said in a report on Oct 22 that investors should look to a stronger CPO price recovery next year based on the anticipated tightening of palm oil supply in 2020 to 2021 on biological tree stress and slower growth in mature oil palm area.
This is due to the lack of new plantings in Indonesia and Malaysia since 2015.
As for crude oil, the Brent has risen 4.15% over the past three months to US$61.69 yesterday.
Bloomberg reported that oil was steady after the biggest weekly advance in view of progress in the prolonged United States and China trade tension.
The United States had said that it was close to finalising the first phase of a trade deal while China said parts of the text for that agreement are “basically completed”.
It also reported that oil bulls were rebuilding their positions but it might take some major news to shake the market out of its current mood and trigger a sustained rally.
CFRA Research Inc analyst Stewart Glickman told the agency that some recent events were unusual, such as the attacks on Saudi Arabia’s oil refinery last month where the market saw a quick uptick but then shrugged it off pretty quickly.