Better prices ahead for CPO, Rabobank

KUALA LUMPUR: Crude palm oil (CPO) prices are expected to average at RM2500 per tonne for 2014, driven by three major factors- demand making a comeback and giving a boost to lagging CPO prices thus far and better consumption from the biodiesel industry, according to Rabobank Food & Agribusiness Research and Advisory director Pawan Kumar.
This is despite CPO futures tumbling 2.5% to a one-year low on Monday, with three-month CPO futures closing at RM2177 per tonne, due to rising palm oil inventory.
Latest figures by MPOB (Malaysia Palm Oil Board) show that the local palm oil inventories have unexpectedly gone up by 1.5% month-on-month to 1.68 million tonnes, on the back of stronger palm oil production and lower palm oil exports.The average price for CPO, however, fell to RM2,410 a tonne in July from RM2,447 in June.
Speaking to reporters after a seminar on commodities outlook yesterday, Kumar said he expects CPO prices to improve in line with the trend of its rival soybean, which is unlikely to go down further from current levels.
"Possibly 4Q will have better price, should be upward, but not rally till RM3,000," he added.
Kumar has placed a "neutral" call on the CPO industry, estimating CPO prices range between RM2,400 and RM2,500 in the second half of the year, compared with between RM2500 and RM2600 in the first half of the year.
For 2015, he targets higher CPO prices of RM2,600 in anticipation of better demand.
In contrast to other vegetable oil, he said palm oil stocks are at a moderate level, but stressed that the pressure from larger availability of other oilseed subdued demand.
For instance, Kumar said, India is using more soybean because of better refining margin, and also the palm oil taxation structure there. Indonesia has a similar palm oil taxation structure.
"If the government changes and restructure (the taxation), we'll see palm demand finally coming back," he added.
Commenting on the risk of El Nino, Kumar said the probability of it happening has reduced to 50%, but he believes the impact of El Nino on the production yield is not significant, judging from the track record over the past two to three years.
"I'm not sure how much production will suffer, anyway it will not be this year's story," he added.
In a research report yesterday, Public Research said it will likely revise 2014 and 2015's CPO price assumptions to between RM2500 and RM2700 per tonne, given negative sentiments and weakening fundamentals.
When asked of rubber, Kumar said he expects the outlook for the commodity to remain bleak in the absence of huge market demand, unless economic growth turns stronger.
"For this year and next year, it (rubber prices) will be similar, I don't think rubber prices (will go) back to the US$3 per kilogramme mark in two to three years, it will linger around US$1.7 to US$1.8 for the next couple of years," he said.
Kumar added that positive signs from China on the import of rubber may not be enough to support the whole rubber industry.
On the flip side, rubber processors are expected to benefit from lower rubber prices due to abundant supplies, even as upstream rubber players suffer from the low selling price.
Meanwhile, Rabobank head of financial market research for Asia Pacific Michael Every expects the ringgit to have more upside in the near-term, with a three-month target of 3.19 against US$, before trending down again to 3.28 in 12 months' time.
"If the US Fed raises interest rate, it will put downward pressure to the ringgit," he said.