KUCHING: Ratings agency RAM Ratings Services Bhd (RAM) believe that prices of crude palm oil (CPO) will average between RM2,300 per metric tonne (MT) and RM2,500 per MT (US$720 and US$780) for the second half of 2014 (2H14).
The group also kept its price forecast for the full year at around RM2,500 to RM2,600 per MT.
For the previous quarter, the second quarter of 2014 (2Q14), CPO price averaged US$888 per MT or RM2,572 per MT, largely within its expectation – respective deviations of plus 1.5 per cent and minus 2.9 per cent from its forecast.
Despite weather-related supply concerns in 1Q14 which resulted in prices rallying to a high of RM2,900 per MT, Malaysia’s total CPO production exceeded the Malaysian Palm Oil Board’s (MPOB) forecast by four per cent in 1H14.
“Coupled with the delay in the much anticipated El-Nino weather conditions to end-2014, narrowly avoiding the peak production season, we opine that the CPO production forecast for both Malaysia and Indonesia (at a combined 48 million MT) is achievable,” it said.
On a separate note, the implementation of both Malaysia’s and Indonesia’s biodiesel mandates have encountered some difficulties.
Malaysia has postponed the nationwide implementation of its B5-biodiesel mandate by two months to September 2014.
Similarly, Indonesia’s biodiesel mandate has not performed within expectation.
“We understand that key stumbling blocks for these two countries are the lack of facilities and logistic issues, especially in Indonesia – an archipelago.
“This, combined with the delayed El Nino, is expected to drive the CPO stockpile upwards, limiting the upside for CPO prices for the remainder of the year,” RAM Ratings commented.
CPO prices had been on a downtrend towards end-June 2014, dropping to around RM2,450 per MT and recently, closer to RM2,300 per MT.
In respect of substitute and competing oils, a good harvesting year is expected for other oilseeds (particularly soybean). Soybean production is forecasted to increase 15.2 per cent y-o-y in 2014.
Given the positive outlook on crop harvesting, global vegetable oil prices have fallen, with the prices of soybean and rapeseed oils dipping 6.6 per cent and 9.4 per cent, respectively, since March 2014.
“Accordingly, the premium gap between soybean oil and CPO has narrowed. This could encourage a switch from CPO to soybean oil, suppressing CPO prices,” RAM Ratings noted.