RAM revises CPO price forecast

PETALING JAYA: RAM Ratings has revised downwards its crude palm oil (CPO) price forecast for 2015 to RM2,100–RM2,300 per metric tonne from RM2,200-RM2,400 due to weak demand.
"Amid subdued sentiment, the commodity's price averaged RM2,219 in the first half of 2015 (1H2015) – the lower end of our earlier expectations.
"For the rest of the year, upside potential is expected to be limited by the feeble price of crude oil, an ample supply of substitute edible oils and a further pick-up in CPO output in the coming months, when oil palms enter their peak production cycle. The weak ringgit may, however, provide some support," the ratings agency said.
It noted that CPO production in Malaysia was flat in 1H2015, reflecting disruptions attributable to the severe floods in early 2015 and less productive trees affected by the dry weather in 2014.
"Depending on the severity of the El Nino weather phenomenon in the coming months, the impact on production will typically only be felt in the longer term," RAM said.
Nevertheless, it pointed out that inventory stood at 2.15 million metric tones as at end-June 2015, some 30% higher from a year ago amid slowing demand growth for the commodity.
RAM noted that Malaysian CPO export volumes declined 4% in 1H2015.
Except for India, where strong domestic demand for vegetable oil underpinned a 34% spike in the purchase of Malaysia's palm products, exports to other key consumer nations such as China, Holland, Pakistan and the US declined 15%.
In contrast, Indonesia's exports advanced about 26% in the first five months of 2015, potentially boosted by a more competitive export duty structure in April 2015.
RAM said that Indonesia which started collecting a levy on palm-oil exports since mid-July may benefit Malaysia's CPO exporters.
The new levy, which requires exporters to pay US$50 (RM192.70) per tonne for CPO shipments and US$30 per tonne for shipments of processed palm-oil products, is estimated to contribute up to IDR4.5 trillion to state coffers in 2015.
Indonesia expects to utilise a portion of the funds raised to further subsidise biodiesel by IDR600-700 per litre, in a bid to boost CPO consumption and support the commodity's price.
Nevertheless, RAM said it is still premature to ascertain the success of the levies in meeting Indonesia's biodiesel targets, given a track record of implementation that has often been disrupted by evolving policies and bureaucracy.
Meanwhile, it noted that Malaysia's bid to increase its biodiesel blending from B7 to B10 has also been complicated by concerns about the impact of higher biofuel content on car engines.