CPO prices rise over stock concerns due to MCO

An analyst says CPO price is expected to trend between RM2,400 and RM2,500 per tonne throughout 2020


WORRIES over tight supplies and distribution disruptions after Malaysia imposed the Movement Control Order (MCO) are pushing up crude palm oil (CPO) prices.

Malaysia, the world’s second-largest producer of palm oil, has been under MCO for the past two weeks, forcing millions to stay home as the country battles to contain the spread of the coronavirus which has claimed 37 lives (at press time).

At the close of yesterday’s trade, the CPO futures contract for April on the Bursa Malaysia Derivatives Exchange added RM104 to RM2,591 per tonne, while May delivery gained RM83 to RM2,509 per tonne. The contract for June delivery was up RM59 to RM2,437, trading between a high of RM2,466 and a low of RM2,402.

Traders are worried that a longer MCO would eventually dry up supplies of the vegetable oil, which is used to make toothpastes and soaps to chocolates and cosmetics.

An industry analyst said despite the government’s clarification over exemptions to the plantation sector, traders are concerned that supplies would be impacted and that is pushing for the prices to rally.

“People are concerned about the movement restriction for planters and whether there will be a shortage of supply, which could lead to a hike in prices.

“The restriction creates uncertainties to the market despite the government’s clarification, which allows the sector to continue as it is categorised as essential, particularly the transportation of the commodity.

“Businesses also need to stock up the volume that is needed for the festive season as (Hari Raya) Aidilfitri is approaching,” the analyst told The Malaysian Reserve.

Following the MCO, which applies to all sectors except essential services related to food supply and national safety, the National Security Council has lifted the order for both palm oil and rubber.

The exemptions allow the harvesting of fresh palm fruit bunches by smallholders and plantation companies, as well as milling and refining activities.

However, the risk of lower production is heightened as estates’ employees are required to self- quarantine should they be exposed to the deadly pathogen.

The measure is being implemented by the Malaysian Palm Oil Association, Malaysian Estate Owners Association, East Malaysia Planters Association and Sarawak Oil Palm Planters Association, in response to infected plantation workers in Sabah.

Sabah, the country’s largest palm oil-producing state, has ordered plantations and factories in three districts to shut down until March 31, after seven estate workers linked to the religious gathering at Sri Petaling Mosque in Kuala Lumpur tested positive for Covid-19.

Yesterday, the state announced that the closure has been extended until April 14 and widened to six districts.

Due to the coronavirus impact, the analyst expects palm oil stockpiles to maintain between 1.7 million tonnes and two million tonnes, similar to last year’s inventory, while production is expected to ease to 19 million tonnes.

“The weather cycle and poor application of fertilisers may push production down.

“The stockpile is low at the moment as it is the low season, but it will pick up by the end of the year after the high season, which is in September and October.”

The analyst said CPO price is expected to trend between RM2,400 and RM2,500 per tonne throughout 2020.

CPO prices have been on the rise as Malaysia and Indonesia increased their green fuel initiative, erasing tonnes from stockpiles and boosting prices of the main commodity for both nations.

While CPO is having a good season, crude oil continues to be battered, dropping below the US$20 (RM86.63) a barrel level yesterday.