KUCHING: Given the existing supply crunch in the oilseed industry, crude palm oil (CPO) prices are expected to continue to hold up over the first quarter of the calendar year 2011 (1QFY11).
According to a senior analyst from ECM Libra Capital Sdn Bhd (ECM Libra), CPO futures continued to climb up week-on-week by 2.9 per cent, largely driven by further news on poor Argentinean soybean prospects.
“The Buenos Aires exchange reported that production is forecast to fall by 15 per cent to 47 million tonnes this year, because of water shortages in the main growing regions,” the analyst highlighted.
Other foreign news included India potentially seeing a bumper harvest for rapeseed crop this year, having seen higher soybean crushings so far. This was said to possibly curb the bullishness in vegetable oils in coming months.
“Besides that, China’s inbound shipments of soybeans may decline by about 13 per cent to 4.6 metric tonnes this month from December, according to a forecast by the Ministry of Commerce,” he revealed. “We think this could cool soybean prices temporarily.”
The analyst also reported that China diverted its purchases of soybean oil from Brazil to the US in recent weeks, stating that the South American country ran short of exportable supplies.
Closer to home, the ECM Libra analyst revealed that Indonesia was suspected of possibly move up its taxes to 25 per cent soon given that their tax rate was tied to CPO prices.
“We recently discovered that this generally does not direct more sales to Malaysia as Indonesian sellers, at these prices, are more than willing to offer discounts to make up for the taxes,” he added.
To note, China and India have been particularly moving to Indonesian palm oil, hence the decline in Malaysia’s export numbers to these two countries over 2010.
On a closing note, the senior analyst highlighted key events to look out for in coming weeks, including the release of Malaysia’s export performance in January, additional announcements on soybean supply shortages, 2011 forecasts for other oilseeds as well as news on inflation and measures to be taken to ease food prices.