CPO prices likely to continue rising in 1Q21
KUCHING: After ending 2020 with a bang, the strong performance by crude palm oil (CPO) prices will likely sustain into the first quarter of 2021 (1Q21).
After falling to below RM2,100 per tonne in May 2020 due to Covid-19 pandemic, Hong Leong Investment Bank Bhd ( HLIB Research) recounted that CPO prices started recovering swiftly since then and ended 2020 on a high note at RM3,850 per tonne, due to supply shortfall and demand recovery.
“CPO price will likely remain elevated until 1Q21, supported by concerns on palm supply tightness in both Malaysia and Indonesia,” HLIB Research said in its review yesterday.
“It is also boosted by seasonally low production cycle for palm oil, which will result in palm oil inventory remaining on a declining mode; low inventory level for edible oil in major edible oil consuming countries, which will continue to underpin demand for edible oils including palm oil; and La Nina phenomenon, which has in turn resulted in slow soybean planting progress in Brazil and lower soybean yield in US.”
CPO futures contract on Bursa
Malaysia Derivatives closed higher on the first trading day of the new year, hitting its highest level since February 2011 with benchmark March 2021 at RM3,724 per tonne.
Beyong 1Q21 however, HLIB Research expect CPO price to soften from 2Q21 onwards on the back of better supply outlook for major edible oils, which will in turn result in more balanced demand-supply dynamics.
“We believe supply of major edible oils will gradually return to normalcy from 1Q21, supported by higher palm production in Malaysia and Indonesia from March 2021, and higher soybean production in 2021,” it said.
“We note that Oilworld is still projecting total soybean supply in the world to increase by circa seven per cent to 361.8 million tonnes in 2020-2021, supported mainly by higher planting acreage.
“Besides, farmers in the US may plant significantly more soybean (at the expense of corn), given the high soybean price currently.”
CPO is currently trading at a premium to soy oil vis-à-vis a US$100 per cent tonne discount to soy oil.
Given its anticipation of a recovery in palm production in 2020, HLIB Research believe the price spread between CPO and soy oil will start normalising once palm production shows signs of improving, hence resulting in CPO price trending downwards.
Meanwhile, Rakuten Trade Sdn Bhd ( Rakuten Trade) believes CPO prices may stay above the RM3,000 per tonne level with RM4,000 being a main hurdle in the coming months.
“We remain bullish on plantation stocks despite the return of the palm oil export duty come January 2021,” commented research team head Kenny Yee in a statement.
On December 2020, Malaysia set the CPO export tax at eight per cent for January 2021.
The rate would be effective from Jan 1-31, 2021, marking the end of the zero export tax enjoyed from June to December 2020.
As to the impact of biodiesel mandates on CPO price in 2021, Yee said with crude prices at current levels, the fuel remains a “not too attractive proposition given its price point and the expected export levies being a source of revenue for the industry”.
“Implementing the Malaysian biodiesel mandate will remain a challenge in 2021 despite its advantages as a more sustainable fuel for the future,” he added.