KUCHING: The United States increasing its biofuel mandate by six per cent to 19.28 billion gallons in 2017 – the highest ever recorded – is expected to benefit crude palm oil (CPO) prices.
MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) in a report pointed out that US’ recent biofuel mandate has caused soybean oil price to surge by 6.8 per cent to US cents 37.14 per pound in Chicago Board of Trade (CBOT) market.
To note, soybean oil is the main input used to produce biofuel in the US as in August 2016, 54 per cent of the total input used to produce biofuel in US came from soybean oil.
“As palm oil is commonly used as a substitute to soybean oil for food and industry purpose, CPO price is expected to increase.
“As it is, CPO price has surged by 1.5 per cent (more than RM50 per metric tonne) to around RM3,000 per metric tonne as of time of writing.
“Coupled with tight inventory situation (October 2016 inventory of 1.57 million MT has tumbled 45 per cent year-on-year against October 2015’s 2.83 million metric tonne), we reiterate our view that CPO price should stay at the high range of RM2,500 to RM3,000 per metric tonne,” MIDF Research commented.
The research team also maintained its November 2016 inventory forecast of palm oil at 1.63 million metric tonne.
However, it pointed out taht the inventory is expected to remain tight as it is only expected to increase by three per cent month-on-month (m-o-m).
“While cargo surveyors’ data shows export decline of between eight and nine per cent m-o-m in the first twenty days of November, we expect export to pick up as high soybean oil price should encourage demand for palm oil. For production growth we are using seasonal factor to estimate the two per cent decline,” it added.
Overall, MIDF Research maintained a ‘positive’ stance on the sector.