Record-breaking CPO price fuelled by low stocks, high exports
CPO production expanded by seven per cent mo-m to reach 1.52 million MT, the highest level since November.
PublicInvest Research
KUCHING: Crude palm oil’s (CPO) record-breaking price rise was attributed to the increase in the price of soybean oil, as well as rising palm oil exports and palm oil stock that remains manageable.
CPO recorded its best performance in the history of Malaysian palm oil on May 7, 2021, when it surged to RM4,758.50 per tonne.
Public Investment Bank Bhd (PublicInvest Research) noted that Malaysia’s palm oil inventories jumped more-thanexpected to a five-month high in April. Palm oil inventories extended its gain for a second straight month, up 7.1 per cent month on month (m-o-m) to 1.55 million metric tonnes (MT), the highest level in five months.
“CPO production expanded by seven per cent m-o-m to reach 1.52 million MT, the highest level since November,” it said in its notes.
“Production in Peninsular Malaysia and East Malaysia rose 3.6 and 11.5 per cent, respectively. The positive data sends a signal that production has been picking up.”
PublicInvest Research saw that China’s surging soy bean demand collided with bad weather in global growing areas stoked fears of shortages, sending the palm oil-soybean oil spread to US$429 per MT, the widest level in 12 years.
“CPO futures have jumped more than 118 per cent in the past year while soybean oil, palm’s closest substitute, has rocketed 150 per cent. The relentless rally in the soybean oil is increasing palm oil’s appeal as the cheapest edible oil,” it said.
Meanwhile, MIDF Amanah Investment Bank Bhd (MIDF Research) observed that April’s CPO exports was up by 12.6 per cent m-o-m to 1.34 million M from 1.19 million MT in the previous month.
“It is notable that the factor that driven the export demand were current low stocks as well as restocking activities ahead of the month of Eid mainly from India and Muslim countries such as Pakistan and Turkey.
“It is worth noting that the demand from China also increased by 52.8 per cent m-om to 111.1 million MT as recently China has approved the new standards for premium palm oil.”
To recap, the latest Chinese Group Standard was the result of multiple stakeholder engagements and extensive bilateral cooperation between MPOB and the respective Chinese authorities, which enabled the entry of Malaysian red palm oil into China.
Looking ar CPO production, MIDF Research saw that it was higher by seven per cent m-o-m to 1.52 million MT which was the strongest monthly level observed since November 2020.
“We opine that higher production was on the back of better weather conditions. On top of that, another factor that contributed to higher volume of production was an increase in labour as the government has allowed foreign workers back into Sarawak from March 1, 2021 under stringent standard operating procedures (SOPs).
“On top of that, it is worthwhile to note that, the Ministry of Plantation Industries and Commodities (MPIC) is in the midst of obtaining a government exemption from the foreign labour hiring freeze in order to secure 20,000 foreign workers.
“We understand that presently our palm oil industry is still short of around 50,000 workers. Hence, we opine that this exemption will help to ease the labour shortage problem in our local plantation sector.”
Geographically, the higher output mainly fuelled from the higher contribution from the state of Negeri Sembilan, Selangor, Perak and Sarawak.
“Going ahead, we expect the production to recover beyond 2QFY21 but below potential, given high reliance on foreign workers.
“In the longer term, we expect production to increase significantly as smallholders would be more aggressive in applying fertiliser during periods of high CPO prices and current better economic conditions.”