Palm oil futures down on waning demand

By SHAHEERA AZNAM SHAH / Pic TMR

PALM oil price has been the lowest in 10 months, dropping 34.19% since the beginning of the year to RM2,038 per tonne on Wednesday.

The monthly benchmarks for palm oil contracts on Bursa Malaysia had been on red for the next 10-month deliveries. The July benchmark depreciated RM28 to close at RM1,947.

The inadequate demand for the vegetable oil, which is mostly used by the food and beverage and transportation sectors, has weighed down its prices as restaurants in affected countries cut down on their businesses coupled with the imposed movement restriction order.

CGS-CIMB Securities Sdn Bhd head of research Ivy Ng said the low-cyclical season of crude palm oil (CPO) production at the beginning of the year has managed to support the prices from plunging.

However, she added that the palm oil prices would continue to deteriorate should the global and local demand does not recover.

“The average CPO price fell by 3% month-on-month (MoM) and rose 14% year-on-year (YoY) to RM2,299 per tonne in April 2020 due to the expected recovery in palm oil supplies in the coming months, coupled with sluggish demand due to the Movement Control Order.

“The weak crude oil price, which has contracted 56% year-to-date to US$29 (RM125.28) per barrel, is also likely to affect the fulfilment of biodiesel mandates.

“The lower palm oil stockpile has kept CPO prices at above year-ago levels so far. But, the replenishment of stocks could happen quickly if demand remains weak in the next few months,” she said.

She added that CPO prices are expected to trade between the range of RM2,000 and RM2,200 per tonne this month.

According to the official data, palm oil inventory in March stood at 1.73 million tonnes, a 1.67% increase from the stock in February.

Ivy said the stock for April, which will be released on May 12, is projected to rise by 14% MoM to 1.97 million, which could be the highest level since December 2019, due to the anticipated stronger output despite the temporary closure of several plantations in Sabah.

“Findings from a survey of palm oil areas by the CGS-CIMB Futures team revealed that Malaysia’s CPO output would increase by 19% MoM or 1% YoY to 1.66 million tonnes in April 2020.

“Palm oil export is likely to increase by 2% MoM and decline 27% YoY, based on average export statistics by cargo surveyors Intertek Testing Services (M) Sdn Bhd and AmSpec Agri Malaysia due to restocking activities and seasonal buying,” she said.

Meanwhile, the global reduction of automotive manufacturing has pushed down the rubber prices, particularly for the Standard Malaysian Rubber 20 (SMR20) grade.

The SMR20 fell to RM4.57 per kg on Tuesday from the average RM5.9 per kg in January.

Malaysian Rubber Board said in a note that the global containment measures due to the Covid-19 pandemic which affected the automotive manufacturing have eased the rubber demand.

“The prices have been affected by the declining global demand for rubber specifically in tyres and automotive rubber components due to Covid-19 containment measures such as restricted movement order by many countries.

“It was also impacted by the US’ West Texas Intermediate oil as the prices have plunged to their lowest level in history at minus US$37.63 on April 20,” it said.