CPO expected to trade up to RM3,000 a tonne next year
Published on: Tuesday, November 24, 2015
Kuala Lumpur: Crude palm oil (CPO) prices are expected to trade as high as US$700 (RM3, 000) a tonne by the middle of next year due to prolonged El Nino drought and more palm biodiesel usage in Indonesia, said LMC International Ltd chairman Dr James Fry."The dry weather is limiting CPO supply. We should see palm oil inventories coming down. There's a pick-up in consumption as Indonesian Estate Crop Fund is raising biodiesel mandate," he said.Since August, Fry observed that in East Kalimantan, the impact of El Nino has resulted in multiple unopened leaves in the oil palms.
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"It is unusual for West Kalimantan to experience as sustained drought. This, too, will hit next year's yields."Over at North Sumatra, Fry high-lighted massive male flowering among the palms is set to result in low crop as early as the first quarter of next year."Central Sumatra rainfall has been deficient for four months. This, I believe, will affect fresh fruit bunches ouput in 2016,"Closer to Malaysia, Fry noted that oil palm estates in Sabah have experienced a long drought and the blow to output is already visible. "Sabah is set to see shrinking production in the next few quarters."
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Indonesia, the world's largest palm oil producer, officially launched its mandate to have a minimum of 15 per cent blend of biodiesel in sold diesel products. This will rise to 20 per cent next year and 30 per cent in 2020.Indonesia is encouraging biodiesel usage to create higher demand for palm oil, which is used for blending into biodiesel. The world's top palm producer began collecting a US$50 a tonne levy on CPO exports since July to fund higher biodiesel subsidies.
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The Indonesian Estate Crop Fund, known as the CPO supporting fund, was established seven months ago to collect levies imposed on palm oil exports. It is being used for subsidising the price of the fuel national oil company Pertamina."Next year, I would estimate around US$600 million of this fund will go to biodiesel subsidies, " Fry said."What we are certain is that palm oil stocks will come down then," he said at the Palm Oil Refiners Association of Malaysia (Poram) forum, here, last Friday.Fry reiterated his long-held view that palm oil prices would continue to be highly-influenced by petroleum prices."Since 2007, the link between vegetable oil prices and petroleum has been robust. The Malaysian Palm Oil Board palm oil stocks move in the opposite direction to the European Union crude palm oil premium over Brent," he said."Should we see a full blown El Nino panning out further into next year, we can expect CPO prices rising to US$600 a tonne by the end of the first quarter and US$700 a tonne by mid-year," Fry said.Meanwhile, Bernama reports that CPO prices will enjoy greater stability following the move by Malaysia and Indonesia to set up the Council of Palm Oil Producing Countries (CPOPC), according to David Ng Heng Soon, a dealer with Philips Futures Sdn Bhd.He said the council would among other things, address impediments to palm oil trade, as well as undertake activities and functions in the interest of the industry for a positive impact on prices."While the market does not expect an immediate impact as the collaboration is still in its early stage, in the long-term they (players) are positive that it (the pact) will stabilise CPO prices."But, what the market wants to know is how both countries can come up with the mechanism to stabilise prices, either by reducing the stockpile or inventory in the country," he said.Indonesia and Malaysia will respectively contribute an initial sum of US$5 million for the operations of the CPOPC.Stay up-to-date by following Daily Express’s Telegram channel.
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