CPO price expected to soften in 2H

KUALA LUMPUR: Crude palm oil (CPO) price is expected to weaken in the second half of 2017 (2H17) as market observers believe this to be due to increasing CPO production, ample supplies of soybeans oil and the absence of strong demand catalyst.

Concurring with market observers were analysts with research firms who believed CPO price is expected to trade in the range of RM2,250 per metric tonne (MT) to RM3,100 per MT this year.

Nevertheless, analysts forecasts that CPO price is poised to move up slightly until the first half of 2017 (1H17) before correcting in 2H17.

Following a conference at Bursa Malaysia Palm and Lauric Oils Price Outlook in Kuala Lumpur recently, analysts noted that CPO price could move into a bearish mode going into 2H17.

The research arm of Public Investment Bank Bhd (PublicInvest Research) in a report yesterday said most plantation industry experts were bearish on 2017 price outlook as they expect the recovery in Malaysia and Indonesia’s CPO production to put pressure on CPO price later this year.

However, the research firm opined that CPO price in the shortterm is likely to be supported due to the presence of Indonesia’s biodiesel mandates and will not experience a sharp correction.

Indonesia’s biodiesel production has increased to 3.3 million MT in 2016 from 1.7 million MT in 2015 due to the successful implementation of the country’s CPO Fund.

The research firm believed that Indonesia’s biodiesel consumption could increase to six million MT this year adding that the higher consumption would act as a price stabilisation mechanism for CPO.

On another note, PublicInvest Research opined that the Malaysian plantation sector has enjoyed a strong CPO price rally since August 2016 as supplies remain tight due to the prolonged lagging effect of EL Nino.

It observed that CPO prices rallied from RM2,400 per MT to the recent level of RM2,950 per MT, represented a growth of 23 per cent.

Going forward, PublicInvest Research expects CPO price to trade in the range of RM2,800 to RM3,000 per MT for 1H17 before witnessing a softer level of around RM2,300-RM2,400 per MT when CPO production increased.

The research firm said its CPO price projection for 2017 is RM2,600 per MT, slightly below the average of RM2,651 per MT in 2016.

Additionally, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) in another report said it forecasts CPO price to average at RM2,550 per MT this year.