Low Crude Palm Oil prices are temporary and are expected to be better next year. (Graphic by Dayang Norazhar/The Mole)
KUALA LUMPUR: Crude Palm Oil (CPO) prices are likely to recover in 2013, despite staying weak in the fourth-quarter in 2012, averaging RM2,500 per tonne, according to Maybank Investment Bank Berhad's latest research report on the plantation industry.
In an email reply to The Mole, industry expert Ong Chee Ting of Maybank cited the report's statement that CPO fundamentals remain weak, with stockpiles at a historic high of 2.48 million tonnes in Sept 2012 (and set to rise even further in Oct 2012).
CPO prices averaging RM2,500 per tonne in the fourth quarter of 2012 will bring in an average CPO physical spot price in 2012 closer to RM2,950 per tonne versus an earlier assumption of RM3,150.
Meanwhile the report stated that the CPO’s price discount to soybean oil was USD299 per tonne (as of November 1, 2012), almost double the historical average of USD162 per tonne.
Such a wide discount was last seen in 2008 and at the time, the discount of over USD300 per tonne lasted nearly six months, between June and November 2008. Similarly, CPO’s price discount to rapeseed oil was USD370 per tonne (as of November 1, 2012) against a historical average of USD290 per tonne.
The report by industry experts stated that observers should be looking forward to a better 2013 in terms of CPO prices.
It maintained that CPO prices will recover in 2013 and average RM3,000 per tonne while the supply of global oils and fats remains tight following two years of weather anomalies in major oilseed planting areas in the USA and South America.
The report also pointed out that should the forecast for a record harvest in South America during the 2012-13 season fail to materialise, prices of soybean (and other oilseeds) will be supported at current prices and will ultimately provide a lift for CPO prices.
Although the price of CPO may be set for recovery next year, one can expect weak CPO prices in the fourth quarter of 2012.
The report further stated that Malaysia’s October 2012 export estimates were disappointing despite a low CPO average selling price (ASP) of RM2,281 per tonne during the month.
Stockpiles looked set to hit 2.7 million tonnes by the end of October 2012, dampening hopes of a quick recovery in CPO prices.
A slow start to the new planting season in South America provides strong price support for competing oils, and will lift CPO prices in the first quarter of 2013 when stockpiles retreat.
The report showed early estimates by independent cargo surveyors Societe Generale de Surveillance and Intertek that Malaysian palm oil exports improved in October 2012 to 1,567,112 tonnes -- a nine per cent month-on-month (MoM) increase -- and 1,600,545 tonnes -- an 11 per cent MoM increase -- respectively.
An average of the two estimates places the country’s palm oil exports at 1,583,829 tonnes, down 14 per cent Year-on-Year.
A plantation analyst from Maybank Investment Bank said palm oil prices in Malaysia were affected by the prices of CPO on a global scale.
The analyst, who wished to remain anonymous when contacted, said: “It is more of a global scenario, but the market should recover from the drop of palm oil share prices in December.’’
“We are expecting to see oil prices increase next year," he said.
“The export factor of Malaysian palm oil is expected to drop more this year, however the prices of CPO has also similarly dropped in other countries," the analyst added.
The plantation expert stated the supply of palm oil and the export factor has a lot to do with the fluctuation of the CPO price during the fourth quarter of 2012.
Prior to this, it was reported that Malaysian palm oil exports were expected to register a drop this year from the record of RM80.4 billion in 2011.
However, Felda chairman Tan Sri Mohd Isa Abdul Samad said that the fluctuation in the price of CPO was “part and parcel” of the industry, and would not negatively impact Felda Global Ventures Holdings Bhd (FGVH).
He said FGVH would shift its focus to the production of biogas from CPO mill effluent in times of excess stocks of CPO and low prices.