Palm oil falls on China, India concerns

By SHAZNI ONG / Pic By BLOOMBERG

THE spread of coronavirus in China and falling demand from India saw a sharp correction in crude palm oil (CPO) price, signalling a possible end to the rally in the edible oil which began in August last year.

The China factor fuelled concerns that demand for crude palm oil will fall as the clamp down in China hits the commodities world hard due to lower consumption from the largest buyer.

The Kuala Lumpur Plantation Index fell 3.17%, or 235.43, to 7,189.32 yesterday, with the move viewed as the biggest since falling 3.43% on June 21, 2013, as the benchmark CPO contract fell RM286 per tonne to RM2575, the biggest intraday drop in more than seven years.

CGS-CIMB Securities Sdn Bhd head of research Ivy Ng said the fall was due to global concerns that the coronavirus outbreak will impact global economy and demand for commodities, including palm oil.

“The CPO price direction is dependent on global economy, crude oil price, government biodiesel mandate and palm oil supply prospects. We expect CPO price to do better than 2019 and average first-half (1H) prices to be stronger than the 2H of 2020,” she told The Malaysian Reserve yesterday.

Ng added that it is difficult to say how tension between Malaysia and India will play out.

“A prolonged conflict will be negative for both sides as it could mean a potential sourcing of palm oil at a slightly higher price by India traders and weaker demand and prices for Malaysian CPO vis-a-vis Indonesian CPO,” she said.

Major stocks under the plantation sector fell into the red yesterday with 29 shares down for the day.

Sime Darby Plantation Bhd contributed most to the index decline, decreasing 5.49% or 29 sen to RM4.99. Bursa Malaysia Plantation’s members have a total market capitalisation of RM139.5 billion.

Earlier this month, CPO price hiked to a fresh three-year high at RM3,125 a tonne for the benchmark CPO contract on Bursa Malaysia Derivative Exchange on positive demand-supply fundamentals.

However, the move by the Indian government to restrict imports of refined CPO has hit demand from Malaysia.

Last week, Reuters reported that tonnes of refined palm oil shipments were stranded at Indian ports after the Indian government restricted the downstream products.

Bloomberg also reported that if not resolved, Malaysia’s US$1.4 billion (RM5.71 billion) of palm oil exports to India will be at risk if the country fails to find a new buyer.

Palm oil shipment to India has dropped almost 50% month-on month in the third week of January, likely due to the restriction measures by the Indian government.

According to data from independent cargo surveyor SGS Malaysia Sdn Bhd, palm oil shipment to India fell 48.7% to 30,050 tonnes during the first 20 days of January compared to December last year.

The shipment in the first 10 days and 15 days dropped 41% and 67.1% respectively to 18,500 tonnes, compared to the exports last month.

The shipment was temporarily held back between Jan 10 and Jan 15 following the Indian government’s announcement to restrict refined palm oil imports on Jan 8.