Higher CPO production, inventory to provide resistance to price rally

The high price could affect Malaysia’s exports in the short term as traders may put off purchases, says analyst


THE peak in crude palm oil (CPO) price is likely to taper off in the second quarter if the industry factors in rising production and inventory levels, said CGS-CIMB Securities Sdn Bhd plantation analyst Nagulan Ravi.

CPO peaked at RM4,247.50 per tonne on Monday, a level last reached 13 years ago.

“The high CPO price is mainly because of production disappointment. Previously, we were expecting production to recover towards the second half of the year.

“The issue with insufficient foreign workers is still there, the production is still at the low level,” he told The Malaysian Reserve (TMR).

According to Malaysian Palm Oil Board’s (MPOB) monthly data, CPO stocks rose 2.44% to 656,047 tonnes in February compared to 640,435 tonnes recorded in January.

Local CPO production declined 1.85% to 1.11 million tonnes against 1.13 million tonnes.

Nagulan said the high price could affect Malaysia’s exports in the short term as traders may put off purchases as long as they can until the price is stabilised.

“The price was out of the ordinary as no one was expecting it and we have not seen the price go to the level in many years.

“With the high price, traders tend to export less and delay purchases, but they could only hold off for so long as palm oil is a necessity.

“The exports were already quite low in February and businesses need to stock up on their inventory,” he said.

Singapore-based Palm Oil Analytics owner and co-founder Dr Sathia Varqa opined that the price will be stabilised as the industry enters into a higher-yield production cycle in the March-June period and the peak output from August to October.

“CPO prices are highly underpinned by tight stocks in Malaysia and rising global vegetable oil complex.

“The price is unlikely to sustain at the current level as we go into a higher production season in March to June and then peak output from August to October.

“While stock rebuilding will take time, high cash prices will deter buying. Despite the high price, palm oil remains the cheapest edible oil in the market,” he said.

Sathia added that most major palm oil- buying countries had purchased a high volume of the edible oil back in December 2020, which slowed the export volume in January and February.

He expects the export volume in March to increase as the countries are forced to buy and restock. However, should the prices remain high, a demand rationing will happen.