CPO prices to rally in 1H21 on tight supplies

Stocks will continue to be tight in October due to labour shortage, freeze in foreign worker permits and the occasional lockdowns


THE prices of crude palm oil (CPO) are expected to remain high in the first half of 2021 (1H21) due to tight stockpile anticipated due to the weaker production cycle going forward.

CGS-CIMB Securities Sdn Bhd head of Malaysia research and regional head of agribusiness research Ivy Ng said CPO prices are expected to stay in the range-bound between RM2,500 and RM3,000 per tonne this month which will bring the average price to RM2,500 for this year.

“Palm oil stocks in Malaysia are tight, at 1.72 million tonnes last September against an average of 2.1 million tonnes in similar months over the last 10 years.

“We estimate the stocks will continue to be tight in October as well due to labour shortage, freeze in foreign worker permits and the occasional lockdowns,” she said at the Virtual Palm and Lauric Oils Price Outlook Conference and Exhibition 2020 yesterday.

Current prices are the highest since 2017, surpassing the 10-year longterm average of RM2,530 per tonne.

“This year will be a recovery year for plantation companies in terms of price and earnings,” she said.

For the first nine months of 2020 (9M20), the palm oil production in Malaysia declined 4% compared to the year before as planters continued to cut back on fertiliser usage while slowing down on replanting activities.

“For Indonesia, just by looking at its listed plantation companies, the output in Indonesia declined by 5% year-on-year in the first six months this year.

“It is similar for Malaysia where labour shortage impacts its ability to maintain a high supply due to the freeze in foreign worker permits in some estates in the country,” she said.

Globally, Ng said global palm oil production is expected to reduce by one million tonnes in 2020 to 74.7 million tonnes compared to 75.7 million tonnes last year as estates have seen a reduction in their productivity due to the pandemic.

She added that output is projected to recover by 2.7 million tonnes to 77.5 million tonnes in 2021 based on the research house’s projection of the Covid-19 vaccines to begin manufacturing next year.

Due to the global coronavirus outbreak, Ng said palm oil demand is expected to drop by two million

tonnes this year before growing by three million tonnes in 2021 led by major importers like China and India.

“Covid-19 definitely has disrupted palm oil demand. On the positive side, there is a widening CPO price discount against other edible oils, which will encourage demand for palm oil.

“Going into 2021, we expect a rebound in the global GDP and CPO demand will likely chart on the positive side as we observe stocks in countries such as India remaining low compared to historical levels,” she said.

Commenting on Malaysia’s B20 (20% palm oil component) biodiesel mandate, the national programme is expected to take up about 64,000 tonnes of palm oil production this year due to the movement restrictions implemented earlier beginning in March.

“Malaysia targets to complete its implementation of B20 by mid-2021 and expects this move to raise domestic biodiesel consumption by 500,000 tonnes when fully implemented.

“However, in April, the government announced it is delaying the programme when the Covid-19 hit,” she said.