RAM sees CPO prices at RM2,200-2,400 in second half

PETALING JAYA: RAM Ratings expects crude palm oil (CPO) prices to be sustained between RM2,200 and RM2,400 per metric ton (MT) in the second half of the year, on the back of demand support from biodiesel and the possibility that domestic production growth may not be as strong as anticipated.
“The increase in Indian import duties on rival soybean oil (SBO) in June 2018 is also expected to reverse the downtrend in palm oil exports for Malaysia and Indonesia,” it said in a statement today.
CPO prices averaged RM2,421 per MT in the first half of 2018 (H1’18) , coming in at the lower end of the rating agency’s forecasted band of RM2,400-RM2,600 per MT.
“Prices have dipped to about RM2,100/MT of late amid soft demand, the pick-up in CPO output and concerns over the trade war between the US and China.”
For the full year of 2018, CPO prices are projected to be at the lower end of its projection of RM2,300 to RM2,500 per MT.
RAM said after four months of growth, Malaysia’s CPO output contracted in May and June, likely attributable to slower productivity during the fasting month and Hari Raya holidays.
Overall local production was up 2% to 8.92 million MT in H1’18 and this modest pace is likely to continue through the rest of the year. Indonesia retained its strong growth trend, with output rising 24% year-on-year (y-o-y) to 18.37 million MT in the first five months of 2018.
On the demand front, the rating agency said Malaysia’s export performance declined in May and June, weighed down by the steep hike in Indian import duties on palm products effective March 1 and Malaysia’s reinstatement of export taxes on CPO in May.
“Even so, overall exports still went up 5% y-o-y in H1’18. Elsewhere, Indonesian exports of palm oil slipped 6% y-o-y in the first five months of 2018 amid weaker demand from India and the European Union. The increase in India’s import duties on soft oils – including SBO – effective June 14 is expected to reverse the downtrend in exports for both countries.”
As at end-June 2018, the level of Malaysian palm oil inventory stood at 2.19 million MT, a huge jump of 43% from a year earlier following the El Nino weather phenomenon.
The US Department of Agriculture expects global supply of vegetable oils to advance 5% in 2017/2018, and 3% in 2018/2019. Production of SBO is estimated to rise a respective 3% and 4%, posing stiff competition within the global market for vegetable oils.
On a brighter note, the recent large price premium of over US$200/MT for SBO against CPO may encourage a switch to the latter.