Low production and intact CPO demand would continue to support prices in the near term, says trader
by S BIRRUNTHA / pic by AFP
THE price of crude palm oil (CPO) is expected to remain strong in the near term with a psychological support level of around RM4,000 per tonne, according to palm oil traders.
Iceberg X Sdn Bhd’s proprietary trader David Ng Heng Soon said low production and intact CPO demand would continue to support prices in the near term.
He added that the commodity is entering into peak output season but production issues are hampering overall yield which will support the prices moving forward.
“The average CPO price for 2021 is expected to be between RM3,400 to RM3,600 per tonne.
“Demand is still strong. If production continues to decline in the second half of the year (2H21), prices should be adjusted accordingly,” he said during the Bursa Malaysia Derivatives East Malaysia Crude Palm Oil Futures (FCPO) pre-launch webinar yesterday.
Ng emphasised he does not expect the price of CPO to rise beyond RM5,000 a tonne.
Last May, the price of CPO broke the record for the tenth time this year when it recorded the highest price in history which was nearly at RM4,700 per tonne.
This was supported by higher prices for commodities like crude oil and copper on the expectations of economic recovery despite lingering Covid-19 pandemic concerns.
Bursa Malaysia Derivatives Bhd commodity derivatives department senior executive Nicholas Lau announced the launch of the FEPO futures contract (East Malaysia Palm Oil Futures contract) in the third quarter of this year to meet the needs of the CPO market in Sabah and Sarawak.
He added the launch of the FEPO contract is expected to boost trade with the participation of more palm oil companies in Sabah and Sarawak with physical shipments through three shipping ports, namely Lahad Datu, Sandakan and Bintulu.
The participation of Sabah and Sarawak palm oil companies in the trading of the FCPO contract at present is small due to the lack of shipping ports in the region.
“By 2020, Sabah and Sarawak will have accounted for almost 50% of the country’s total CPO production. With the launch of FEPO, it will provide a better and more viable price recovery for the Sabah and
Sarawak CPO markets,” Lau said. Commenting further, Lau said the new contract mirrors most of the FCPO specifications, with enhancements made to benefit East Malaysian palm oil players. He noted that Sabah and Sarawak contribute about 45% of Malaysia’s CPO production and the FEPO would allow traders in the nation’s two largest palm producing states greater price discovery and a viable option for physical delivery.
Additionally, he said the FEPO would also affirm the country’s position as the global price benchmark for CPO, as well as strengthen the link between the Malaysian export and Chinese import market. In this regard, Lau said the exchange seeks to launch FEPO as an entirely separate contract from FCPO.
He added the FEPO contract will have three exceptions — trading hours, delivery points and speculative position limits.
According to Malaysian Palm Oil Board, export of palm-related products from East Malaysia has surpassed that of Peninsular Malaysia since 2013.
In 2020, East Malaysia exported a total of 8,876,923 tonnes of palm-related products compared to 8,492,572 tonnes exported from Peninsular Malaysia.
This amounted to a total export value of RM49 billion.