Lower November palm oil inventory pushes CPO prices higher

Palm oil stockpiles for the month fell 4.1% to a 3-month low at 2.3m tonnes


THE lower palm oil inventory recorded in November will fuel the ongoing rally in prices of the commodity which was brought on by supply worries amid expectations of lower production.

Bullish fundamentals have driven crude palm oil (CPO) prices to record highs as industry players have been constructively addres-sing the shortage of supplies for consumption in 2020, CGS-CIMB Securities Sdn Bhd head of research Ivy Ng said.

“When production is falling, industry players would push prices on the basis that there could be a shortage in the future.

“However, CPO prices are probably going to hover around the current level before they correct in the near term as players have been addressing the supply worries,” she told The Malaysian Reserve.

According to data released by the Malaysian Palm Oil Board (MPOB) yesterday, palm oil stockpiles for November fell 4.1% to a three-month low at 2.26 million tonnes, compared to 2.35 million tonnes in October.

Palm oil production fell 14.4% to 1.54 million tonnes, reflecting lower shipments which contracted 14.6% to 1.4 million tonnes.

For CPO prices to climb further, the market needs more evidence that palm oil stocks will drop more than expected, Ng added.

She said Malaysia’s lower stockpiles for November were in line with the research house’s expectations, although exports came in below estimates.

“I think the declining stock represents what the market is expecting. However, stockpiles, production and exports are still performing above our expectations,” she said.

The CPO export duty, which was exempted by the government from May 1 to Dec 31, 2019, and is now being re-enforced beginning 2020, would boost export activities towards the end of this year.

“Our view is that we can see more exports going out before 2020 and it will not be as strong in the first quarter next year, as people may have bought early to evade the export tax,” Ng said.

Moving forward, CPO prices will be determined by the country’s palm oil inventory levels and whether supplies can be reduced beyond market projections.

Prices will also hinge on whether the country’s biodiesel mandate, which involves the use of palm oil, can be effectively implemented.

CPO futures prices rose as much as 0.9% earlier yesterday to hit RM2,929 per tonne on Bursa Malaysia, the highest intraday level since early 2017, before paring gains to close at RM2,900 a tonne.