KUALA LUMPUR: Although the price outlook for palm oil in the medium term looks mixed, a policy switch to boost the biodiesel programme will maintain its long-term prognosis.
The successful implementation of the biodiesel programme in palm oil producing countries would offset the high inventory, subsequently firming up prices.
In this regard, the Plantation Industries and Commodities Ministry has indicated the country’s commitment in implementing the B10 Programme in other sectors, such as industry and power generation, allowing domestic annual palm oil consumption to reach 1.2 million tonnes.
The programme involves the blending of 10 per cent palm methyl ester with 90 per cent fossil fuel diesel.
Speakers at the three-day Palm and Lauric Oils Conference and Exhibition (POC) 2015, which ended on March 4, suggested that crude palm oil (CPO) price would firm up to an average of RM2,260 a tonne for the first half due to lower production.
The decline in production was attributed to the recent floods, but as local planters start to recover, it could rise well above 2.5 million tonnes in the fourth quarter.
The anticipated stronger production, coupled with the slump in Brent crude oil, would weigh down on CPO price, pushing it down to an average of RM1,770 a tonne for the second half of this year.
The third month May futures contract on Bursa Malaysia Derivatives ended at RM2,288 per tonne on Friday while on the physical front, it stood at RM2,350 per tonne.
LMC International Ltd chairman James Fry expects Brent to remain under pressure due to the expected increase in US interest rates, and average at US$60 per barrel this year.
However, Gavin Maguire, editor-in-charge, Commodities and Energy, Asia at Thomson Reuters said the low price might work as a competitive advantage for palm oil against its rivals such as soy, rapeseed and sunflower seed oils.
“Palm oil used to be the cheapest guy in town, so it should continue to be that to continue to win more business,” he added.
The conference, themed ‘Trade, hedge and be ahead of the markets’ and organised by Bursa Malaysia, saw close to 2,000 attendees from 67 countries representing the entire value chain including plantation holders, manufacturers, fund managers, traders, financiers, derivatives participants, and logistics and infrastructure providers. — Bernama