RM2,200-RM2,400 price range seen for CPO

RAM says domestic production growth may not be as strong as expected

PETALING JAYA: RAM Ratings expects crude palm oil (CPO) prices to be sustained between RM2,200 and RM2,400 per tonne in the second half of 2018.

It said the forecast was underpinned by demand from biodiesel and the possibility that domestic production growth may not be as strong as anticipated.

RAM also said the increase in Indian import duties on rival soybean oil in June 2018 was also expected to reverse the downtrend in palm oil exports for Malaysia and Indonesia.

In the first half of 2018, CPO prices averaged RM2,421, which were at the lower end of RAM’s forecast band of RM2,400-RM2,600.

CPO prices have dipped to about RM2,100 of late amid soft demand, the pick-up in CPO output and concerns over the US-China trade war.

RAM said after four months of growth, Malaysia’s CPO output contracted in May and June.

Overall local production inched up 2% to 8.92 million tonnes in the first half of 2018 with modest pace likely to continue through the rest of the year.

Indonesia also retained its strong growth trend, with output rising 24% on-year to 18.37 million tonnes in the January to May period.

On the demand front, Malaysia’s exports fell in May and June, weighed down by the steep hike in Indian import duties on palm products (effective March 1, 2018) and Malaysia’s reinstatement of export taxes on CPO in May. Even so, overall exports still went up 5% on-year in first half of 2018.

Indonesian palm oil exports slipped 6% on-year in five months of 2018 amid weaker demand from India and the EU.

“The increase in India’s import duties on soft oils, which came into effect on June 14 is expected to reverse the downtrend in exports for both countries,” it said in a statement.

As at end-June 2018, Malaysian palm oil inventory was 2.19 million tonnes – a stark contrast to a year ago (43% year-on-year, 1% month-on-month) following the El Nino weather phenomenon.

Indonesia’s inventory level hit 4.76 million tonnes as at end-May 2018 (end-December 2017: 4.02 million tonnes) due to robust production growth and sluggish exports.