KUALA LUMPUR: The crude palm oil (CPO) market is expected to remain stable until next year with prices hovering around RM2,650 per metric tonne due to supply constraints brought on by the El Nino phenomenon and its propensity to follow prices of competing oils, said an analyst with a domestic research house.
“While the recent El Nino phenomenon was comparatively mild, it may be enough to impede the growth of palm flowers which takes six months to mature and produce fresh fruit bunches (FFB).
“Hitherto, strong demand and tight global edible oil inventories, with stock/usage ratio falling to multi-year lows, are providing support to edible oils prices in general,” he said.
From January and July, CPO prices were range-bound hovering between RM2,300 to RM2,700 per metric tonne.
“We also expect CPO prices to encounter immediate resistance at around the RM2,600 per metric tonne level and consolidate thereafter in the near-term.
“CPO price movements have been, and will, likely continue to be influenced by the general trend in major commodities particularly crude oil and soybean oil, Syed Muhammed Kifni added.
He also said the sustainable way for the palm oil industry in Malaysia was to continue expanding output by improving yields.
The average FFB per hectare and the average oil extraction rate (OER) of oil palm plantations in Malaysia have stagnated around 20 metric tonnes per hectare and 20 per cent, respectively, in the past decade.
Various research efforts have been undertaken by both private and government entities to enhance the yields of oil palm tree, however, the results so far has been rather evolutionary rather than revolutionary.
Nevertheless, efforts are ongoing and some major plantation companies such as Sime Darby Bhd and Genting Plantations Bhd have embarked on cutting-edge genome research which may provide the industry with ground-breaking solutions to its long-term growth conundrum.
Meanwhile, head of research, ECMLibra Investment, Bernard Ching said the industry expected range bound trading over August with some negative bias from rising production and bearish soybean news.
In July, CPO futures rebounded slightly and closed the month seven per cent better.
“We believe it is too early to tell if the current La Nina spell will pose significant threats to production,” he said.
With prices hovering between RM2300 to 2700, companies at this level would still be very profitable, he said, adding that in the mid-to-longer-term, the key driver would be weather related events that might interrupt production.
Over the long-term, palm oil consumption can only increase hence prospects are good for the industry to expand further.
“The only problem is the scarcity of suitable land that could dampen growth,” Ching added. — Bernama