Oversupply and export concerns hurt CPO prices


Crude palm oil (CPO) prices slumped to below the RM2,200 level last seen at the end of 2015 as oversupply and global uncertainties, especially from key importing nations, hurt the country’s main commodity.

The commodity, which is a key ingredient in the making of various products from toothpaste to chocolate, is feeling the pressure. CPO price dipped below RM2,200 last week to RM2,159 per metric tonne last Friday, the lowest since Dec 18, 2015, when prices were at RM2,153.50.

Bursa Malaysia’s Plantation Index has dropped 4.83% this year, hovering at 7,492 points, losing more than 600 points from its 52-week high of 8,164.

The escalating US-China trade war saw Beijing slapping a 25% levy on US soybean imports, sending soyoil prices to a near three-year low. China imported 36.25 million tonnes of soybeans from the US last year. CPO prices followed the lacklustre performance.

Maybank Investment Bank Bhd senior analyst Ong Chee Ting said CPO prices are also depressed as production is heading to its peak and inventory levels are sizeable.

“There is a seasonal factor to it. Production is expected to pick up in the second half of this year (2H18), while the current stockpile remains ample in both Malaysia and Indonesia.

“Export estimates for the first 15 days of July by independent cargo surveyors show no signs of a pick up in export demand,” he told The Malaysian Reserve (TMR).

Malaysia’s palm oil inventory rose to 2.19 million tonnes in June on imports more than doubling to 85,889 tonnes from 32,260 tonnes the month prior, according to data from the Malaysian Palm Oil Council.

Palm oil exports fell 12.6% to 1.13 million tonnes in June, compared to May this year, as worries that an economic slowdown in China would impact its purchasing desire for CPO. Export growth would help draw down inventory levels, while offsetting the higher output expected in 2H18.

But Ong said the expected increase in demand for palm biodiesel should result in a stronger pick-up for the country’s CPO exports.

“The palm oil production is entering its peak output months, which is traditionally accompanied by seasonally low CPO price.

“But we believe there is a limited downside to the CPO price, given the support of high crude oil price which should stimulate demand for palm biodiesel,” he said, adding that CPO prices are also closely related to crude oil price.

BA local industry player said higher uptake from key markets will help bring down inventory levels, while China’s levies on US soybeans could increase demand for competitive edible oils such as palm oil.

“Higher palm oil consumption in China and India should eat into stockpiles, while the trade war impact on soy will see more demand for palm oil in China during the country’s winter period,” the source told

TMR. “Meanwhile, production for 2018 should come in below expectations on continuing lag effects from the El-Nino dry spell.”

India was Malaysia’s leading export market at 1.39 million tonnes, or 30.7% of the total 4.52 million tonnes exported in 1H18, while China contributed to 19.1%, or 865,637 tonnes.

According to an industry analyst, Malaysian-based plantation companies will see a slow third-quarter (3Q18) performance this year, as the weaker ringgit and palm oil stockpile levels weigh down CPO prices.

“By 4Q18, we anticipate a slight recovery as palm oil stocks should decline as production heads into the low season.

“We forecast CPO prices to trade at RM2,500 per metric tonne this year and to be slightly lower at RM2,450 per metric tonne in 2019,” the analyst added.