After 8-year high, lower CPO prices expected

by AZREEN HANI / pic by TMR FILE

FITCH Ratings Inc expects crude palm oil (CPO) prices to decline in 2021 on higher supply despite some upside risk, such as a strong La Nina weather pattern.

The rating firm said it expects the prices to average at US$560 (RM2,268) per tonne over the year.

“There are indications that supply and inventory are picking up in Indonesia, which is the world’s largest CPO producer, and high prices are affecting demand from key constituents, such as Indian imports and Indonesian biodiesel,” it said.

Malaysian benchmark CPO spot prices reached US$900 per tonne in December 2020 for the first time since 2012.

It averaged at around US$810 per tonne in the fourth quarter of 2020 (4Q20) to date. This was significantly higher than the US$660 per tonne average in 3Q20.

Prices in the second half of 2020 (2H20) were supported by weak output and low inventory in Malaysia, robust prices and outlook for soybean oil (a close substitute for palm oil) due to market expectations of dry weather affecting supply, and a recent hike in Indonesian palm oil export levies.

Palm oil inventory in Malaysia continued to decline in 2H20 on weak output and healthy exports. According to the rating agency, output in Malaysia was up by 3% year-on-year (YoY) in 3Q20, but declined sharply in November to 1.5 million tonne, which was 3% lower YoY.

Output was 6% lower in Indonesia at 12.5 million tonne. In 1Q20, Malaysia’s output was down by 22% and Indonesia’s by 13%, just when the Covid-19 pandemic broke out in the region.

Malaysia’s 3Q20 palm oil exports were up by 7% YoY and 15% quarter-on-quarter. However, shipments fell sharply in November and were 7% lower YoY.

Exports to China formed 16% of the total in 11 months of 2020, followed by India and the European Union at 14% and 11% respectively. India was the largest export destination in 2019, taking up 24% of volume, Fitch said.

The latest data for Indonesia also suggest that inventory surged to 5.3 million tonne in September 2020, which was the highest level since at least 2016.

The Malaysian Reserve previously reported that CPO prices are expected to remain high in 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 rangebound between RM2,500 and RM3,000 per tonne in October, which will bring the average price to RM2,500 for this year.

“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.