KUALA LUMPUR: The year 2015 saw palm oil prices plummeting to historic lows while the rest of the commodities in Malaysia merely stayed afloat, but the outlook seems a little promising.
During the year, like many major commodities in the world, palm oil was also affected by the sluggish demand due to slow growth in global economy, high-stockpile, currency fluctuation and geo-political issues.
The weather was neither on its side with a majority of oil palm plantation areas being hit by floods, hence, curbing output.
In a nutshell, the industry took a beating in 2015 with crude palm oil (CPO) recording a lower average price of RM2,042 per tonne compared with RM2,506 per tonne last year, according to Felda Global Ventures Holdings Bhd (FGV) president and chief executive officer Datuk Mohd Emir Mavani Abdullah.
He said CPO prices did not even surpass RM2,302 per tonne this year and this affected the margins of many plantation companies, including FGV.
“And, based on our forecast, we expect the CPO prices to hover around RM2,200 per tonne in the first quarter of 2016,” he told Bernama via e-mail.
However, palm oil expert Dr James Fry has thrown in a ray of hope for the industry by saying that CPO price could actually hit RM3,000 per tonne should a full-blown El Nino or drought take place.
Palm oil inventories or stock is one of the key CPO price catalyst.
He predicted that the world’s CPO output would fall between six and seven per cent in 2016, below this year’s production mainly due to the extreme weather condition.
Malaysia and Indonesia together account for around 85 to 90 per cent of total global palm oil production and in 2016, Malaysia is expected to produce 19 million tonnes and Indonesia 30 million tonnes.
Besides, Indonesia’s aggressive biodiesel mandate is also expected to give the industry the much needed boost in terms of pricing.
But, the full impact of the El-Nino strike is still unclear, leaving the industry in a conundrum if the rosy outlook remains intact.
Mohd Emir said CPO production by major producers were set to increase in tandem with the maturing of planted areas coming into production coupled with higher fresh fruit bunch (FFB) yield.
Without El-Nino and high production, this will result in a high stocks which will see CPO prices coming under pressure all over again in 2016.
Malaysia’s total palm oil stocks in November jumped to 2.91 million tonnes against the 2.84 million tonnes registered in the previous month.
Among the major key developments that took place in the industry this year was the establishment of the Council of Palm Oil Producing Countries by Malaysia and Indonesia.
Both countries announced their commitments to sustainable palm oil practices, ensuring price stability in palm prices, harmonise stock management, improve competitiveness as well as create demand for biodiesel mandates.
Palm oil, one of the biggest drivers of the Malaysian economy, is expected to contribute RM69.3 billion to the country’s Gross Domestic Product in 2015.
As for the rubber industry, the commodity was also affected by the low global commodity price in 2015 with tyre grade SMR 20 quoted as low as 480.50 sen a kg this year.
This prompted the government to introduce the Rubber Production Incentive (IPG), an effort to safeguard the interest of mainly the smallholders, who contributed 91.8 per cent of total natural rubber production in Malaysia.
The industry’s outlook in 2016, however, remains favourable, said Malaysian Rubber Board Director-General Datuk Dr Mohd Akbar Md Said.
“Several new initiatives have been formulated in review of the National Key Economic Area programme in the early part of 2015 and the industry is expected to record a moderate increase in rubber price and export value,” he said.
Mohd Akbar explained that the industry was expected to record a moderate increase in rubber price, while export revenue would grow between six and seven per cent from RM32 billion to RM34 billion next year.
The rubber industry contributed RM30.61 billion to the country’s Gross National Income in 2014 while exports stood at RM23.6 billion.
“China’s policy in reducing by half the purchase tax on smaller cars could stimulate demand for rubber while the growth in the US auto industry will also help to uplift demand and support for rubber prices.
“Besides NR, exports of compound rubber would increase by 22 per cent while export of industrial and general rubber products such as rubber gloves would improve 5.4 per cent,” he said.
Based on the International Rubber Study Group World Rubber Industry Outlook for June 2015, global rubber demand in 2016 is forecast to be about 12.9 million tonnes, up 4.9 per cent, of the estimated figure for 2015.
Turning to the tin market, although cast by the same fate as other commodities in terms of prices, the metal remained the best performer against the the rest of the six metals traded on the London Metal Exchange. — Bernama