Short-lived downwards trend for CPO price

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To recap, CPO price (local delivery) started on a solid foundation at RM5,214 per tonne in early January 2022, while in March saw active accelerations to RM8,077 per tonne before easing to RM5,105 in June. — AFP photo

KUCHING (July 4): Crude palm oil’s (CPO) price rally is waning seemingly in correction mode given the weak numbers seen to-date of RM4,766 per tonne, but analysts believe there are signs that this soft pace is short-lived, and that prices will stay elevated.

To recap, CPO price (local delivery) started on a solid foundation at RM5,214 per tonne in early January 2022, while in March saw active accelerations to RM8,077 per tonne before easing to RM5,105 in June.

MIDF Amanah Investment Bank Bhd (MIDF Research) cited a few factors disconcerting this sharp declined.

These include Indonesia lifting its export ban and cut its maximum PCPO export tax and levy to US$488 per tonne, resulting in Malaysia’s CPO being less attractive due to the price discount; we are entering the higher CPO production cycle seasons; and sentiment concerns on demand as inflationary fears grasp in.

“We think this contraction is justified at the moment, as if we compare to 2021’s year to date performance, it faced quite the same strained position during the period,” MIDF Research said.

“We believe the prices grew at a too fast pace as opposed to subsequent year and seemingly has peaked as market assessed Russian-Ukraine war and inflation impact.”

This echoes Plantation Industries and Commodities Minister Datuk Zuraida Kamaruddin’s views that CPO prices are not expected to fall below RM4,500 a tonne.

“CPO prices were expected to drop by the end of the year but this had occurred earlier as a result of Indonesia’s palm oil export ban and the Russia-Ukraine conflict.

“The price of palm oil has not dropped to previous levels of RM2,500, but as expected, the norm would be between RM4,500 and RM5,000 a tonne and we are in that phase now.

“This is what I had expected, that the new norm would be between RM4,500 and RM5,000 a tonne. Nevertheless, palm oil producers are still enjoying high prices and they are still getting a high income,” she said on Sunday.

Going forward, MIDF Research anticipate that CPO price to rest above at RM5,000 level in the second half of the year given on longer outlook, whereby supply tightness over the edible oils is still present due to subdued soybean production due to drought in South America amidst lower planted US soybean area; supply concerns amid Russia–Ukraine prolongs war; and lower than expected on Malaysian palm oil production.

“Despite our positive view on the sector, we do expect the CPO price will ease in 2H22 but at a gradual pace on concern of inflationary pressure globally after achieving higher-than-expected CPO price in 1H22,” it estimated. .

“As such, we maintain our 2022 CPO price forecast of RM5,500 per metric tonne at this juncture. In line with this, we reaffirm our positive stance on the plantation sector.”