2019 CPO PRICE TREND – VIEWS FROM INDUSTRY EXPERTS
MPOC PALM OIL INTERNET SEMINAR (POINTERS), 19 - 25 AUGUST 2019
2019 CPO PRICE TREND – VIEWS FROM INDUSTRY EXPERTS
A SUMMARY REPORT
MPOC’s second POINTERS for the year 2019 was held from 19-25 August, 2019. A panel of experts were engaged to analyze and report the factors that support the recent price increase and forecast CPO price trend for 2019.
Price Forecast Summary by Experts
The discussions and presentations on CPO price in POINTERS concerns historical and future CPO price trend. Historically, the average third month CPO price quoted in Bursa declined from RM2,306 /MT in 4 February, 2019 to RM1,937/MT in 10 July 2019 before moving up to RM2,262 in 23rd August 2019. (Refer to chart 1).
Source : Bursa Malaysia Berhad Note : Third month CPO price
During 4th February, 2019 till 10 July, 2019 period, the experts are of the view that the higher year on year CPO production in Indonesia and Malaysia pulled the CPO price downward. This high production trend resulted in high palm oil inventories in both Malaysia and Indonesia for the first half of 2019. (Refer to chart 2) Short term outlook calls for increasing matured oil palm trees in Indonesia while the growth in mature trees is rapidly slowing in Malaysia and outside Indonesia. One of the speakers refers to this pattern of production and concluded that Indonesia’s production will register higher annual growth by 6.2% or 2.6 million MT to 44 million MT in 2019. Meanwhile, MPOB forecast that Malaysia’s palm oil production to record a slower growth of 0.78 million MT or 3.9% to 20.3 million MT.
Chart 2 : Malaysia and Indonesia’s palm oil stocks ( Jan. 2018 – May 2019)
Source : www.pointers.org.my
Other than high year on year production of palm oil in Indonesia and Malaysia, the CPO downward trend during the period is supported by high palm and soyabean oil stocks in China. In July 2019, China soyabean oil stocks recorded a yearly growth by 0.96% to 1.48 million MT while palm oil inventory recorded a yearly growth of 17.67% at 660,000 MT.
CPO price improved after 10th July, 2019. Influence of CBOT’s US soybean price on CPO price is obvious. There is a concern in the market on the depletion of South American soybean supplies. Towards the end of the year, there will always be a situation of depletion of South American soybean supplies and ample US soybean supplies due to differing planting and harvesting season. With China’s continued reliance on soybean to support its soymeal demand, this means that soybean oil prices will be more bullish in China which led to RBD palm olein price to rise in the Dalian Commodity Exchange, leading speakers to expect higher CPO price towards the end of the year.
The delayed monsoon arrival in India by 15 days is expected to help improved CPO prices. Monsoon normally covers nearly two-third of India by June 15. It is delayed by 15 days this year. This delayed monsoon arrival is anticipated to delayed soybean sowing in India and could affect domestic yield. If oilseeds production is affected by the late monsoon, India’s palm oil imports for 2019/2020 could be higher than the initial expectation. Based on the expectation of India’s lower oilseed production, one of the speaker forecast that India’s edible oil import for 2018/19 will rise. ( Refer to table 1). The speaker’s estimated breakdown of the different types of oils imported is based on the current import duty of different types of oils imported and the different edible oils expected relative prices.
Table 1 : India’s Edible Oil Supply & Demand for 2017/18 and 2018/19
Source : www.pointers.org.my
Reduced domestic availability of soybean oil, attributed to US-China trade war and ASF (African Swine Fever) is another factor that would potentially increase palm oil imports in China and help to bring CPO price upwards. According to the data provided by one of the speakers, growth of live hogs reduced by 20% (Y-o-Y) in May 2019 which means the overall demand for soymeal in 2019 will drop leading to reduced soybean crushing activity and soyabean oil production.
Source : www.pointers.org.my
Expectation of higher demand for palm oil in Indonesia’s biodiesel sector is anticipated to push CPO price higher. Narrowing of the gap between Indonesia palm oil supply and demand, assuming B30 mandate is implemented in 2020, will provide support for higher CPO prices.
Chart 4
Source : www.pointers.org.my
MPOC summarised the global oil fats supply outlook for 2019. (Refer to table 2). Based on MPOC’s analysis, world production of oils & fats is forecast to increase by 4.6 million MT to 236.0 million MT in 2019. Consumption is forecast at 233.9 million MT which is lower than production by 2.1 million MT. Global oils and fats Stock Usage Ratio (SUR) for 2019 is forecasted at 14.85% which is slightly higher than 2018 SUR which was at 14.72%. Tracking CPO prices against global oils and fats stock usage ratio (SUR), MPOC forecast that CPO price will move up from an average of RM2,142/MT for first half of 2019 to RM2,265/MT in the second half of 2019. MPOC presenter expects CPO price to reach RM2,400/MT by the end of the year.
Table 2
Table 3
Source : www.pointers.org.my
Conclusion
The experts who presented their papers at the POINTERS seminar are of the view that the average CPO price traded in the second half will be higher than the first half of 2019. From a low of RM1,937/MT in 10 July 2019, MPOC forecast that CPO price will move up to RM2,400/MT by the end of the year. Positive sentiments is mainly supported by depletion of South American soybean stocks until the next harvesting season in March 2020, delayed monsoon arrival in India by 15 days which is expected to affect the country’s oilseed production and reduced domestic availability of soybean oil attributed to US-China trade war and ASF (African Swine Fever) which would potentially increase China’s palm oil imports.
(Details of presentation and discussion can be viewed in the POINTERS website : www.pointers.org.my. For further query, you may contact the author Lim Teck Chaii at lim@mpoc.org.my)