PETALING JAYA: Fitch Ratings said while the uptrend in crude palm oil (CPO) prices will continue into early 2020, it could moderate later due to higher supply on the back of better weather conditions and fertiliser input.
Malaysian benchmark CPO prices have jumped to around US$700 (RM2,883)/tonne since October after remaining below US$500 for most of the year.
However, the rating agency said the average for 2019 of around US$510 is lower than the US$555 in 2018. For 2020, it is expected to average US$550.
CPO output fell in 2019 with November production declining 17% year-on-year (yoy) after rising 10% in Q1’19. The inventory level in November also fell 30% from the December 2018 peak and by 25% yoy.
Fitch said drier weather conditions for most of 2019 and cuts to fertiliser inputs, especially by the smaller players in response to weak prices, have been the key factors behind the reduction in industry yields.
However, it believes that the recent CPO price spike should improve producers’ cash flows and encourage an increase in fertiliser input, which in turn gradually boost output.
While Indonesia is targeting a 45% jump in the consumption of biodiesel made from CPO in 2020 to 9.6 million kilolitres, Fitch pointed out that a sustained CPO price rise may discourage the government from pursuing its target aggressively as it will eliminate the discount to regular diesel prices.
“The sharp rally in CPO prices has also reduced its attractiveness via-a-vis competing edible oils such as soybean oil, which could affect demand from price-sensitive markets such as India.”
