Waning demand for CPO threatens exports, price

Analyst says the volume loss due to the pandemic is much more severe than anticipated and will affect the CPO’s price

By SHAHEERA AZNAM SHAH / Pic TMR

THE dwindling global demand for palm oil could slash Malaysia’s export revenue as countries enforce lockdowns and restrict people’s movements to curb the spread of Covid-19.

Malaysia’s export of the edible oil plummeted 41.7% from 1.53 million tonnes to 890,331 tonnes during the first month of the country’s Movement Control Order (MCO), which began on March 18, compared to the same period last year, according to official data.

Palm oil prices are also being pressured by China’s, one of Malaysia’s largest palm oil buyers, decision to utilise 500,000 tonnes of its soybean reserves due to delayed cargoes from Brazil, its top soybean supplier.

CGS-CIMB Securities Sdn Bhd head of research Ivy Ng said the volume loss due to the pandemic was much more severe than anticipated and would affect the crude palm oil’s (CPO) price.

“The fallout in export is worse than what had been expected due to the MCO in many of the consuming countries such as India and Europe. The situation should be a concern to the government in terms of the country’s export revenue and its effects on the vegetable oil’s selling prices,” she told The Malaysian Reserve.

Ng added that CPO prices will continue to be pressured as the government plans to defer the subsequent launches of the national B20 biodiesel (biofuel with a 20% palm oil component) programme.

“The slowdown in palm oil demand has been negatively affecting CPO prices and the biodiesel mandate could have helped to cushion the impact if it was not being delayed,” she said.

The price of CPO declined 32.13% to RM2,102 per tonne last Thursday after ranging between RM3,131 and RM2,640 per tonne in January.

Ng opined the production of  CPO this year could reach 19.1 million tonnes, a drop of about 4% compared to 19.86 million tonnes produced in 2019.

She added that based on the production trend, demand for palm oil should improve in the second half of the year (2H20) if the affected countries collectively manage to contain the pandemic from worsening.

“Our projection for palm oil output is 19.1 million tonnes for 2020 and to date, the average CPO prices have been higher than the previous year.

“However, production has been weaker. We anticipate on an overall basis, and if Covid-19 is well-contained, demand should improve in 2H20. If not, we could see a weaker outlook on prices this year against last year,” she said.

Following the delay in biodiesel programme roll-out, Singapore-based Palm Oil Analytics owner and co-founder Dr Sathia Varqa said Malaysia’s inventory could be raised by 970,000 tonnes due to the postponement.

Last year, the country’s palm oil inventory stood at two million tonnes, a drop of 37.5% from 3.22 million tonnes inventory in 2018.

With the biodiesel programme postponed to an unspecified date due to Covid-19 and by stalling biodiesel production, Malaysia may “lose” around 970,000 tonnes of CPO which was meant to be used for biodiesel production from April to December, Varqa pointed out.

“With production set for a rise in the peak production months of August, September and October coupled with the badly performed exports and biodiesel segments, CPO prices will be under pressure in 2H20 and likely to slip below RM2,000 per tonne on the benchmark month,” he said.