CPO price likely to average at RM4,100 by year-end on tight supply

The potential decline on CPO prices hinges on the recovery for sunflower oil, soybean oil and palm oil supplies 


CRUDE palm oil (CPO) price is expected to average to RM4,100 per tonne by year-end from current spot price of RM5,118 due to a tight supply. 

CGS-CIMB Securities Sdn Bhd analysts Ivy Ng Lee Fang and Nagulan Ravi said the potential decline on CPO prices hinges on the recovery for sunflower oil, soybean oil and palm oil supplies as farmers increase their plantings due to attractive prices. 

“There is upside to our average CPO price view of RM3,700 or RM2,900 for 2021/22 due to supply shortfall stemming from labour shortage issues,” they said in a research “Speakers in the POINTERS” event, predicting that palm oil supplies will remain tight in the near term, and CPO prices to decline from the current spot price of RM5,118 per tonne to average at around RM4,100 per tonne in 2021. 

Ng and Ravi stated that the price trends predicted (by the event speakers) are broadly in line with the research outfit’s own target. 

Malaysian Palm Oil Board DG Dr Ahmad Parveez Ghulam Kadir said the expectation for CPO price to fall hinges on supply recovery for sunflower oil, soybean oil and palm oil in the coming months. 

He anticipates the country’s CPO production to fall 6% to 18 million tonnes in 2021 and palm oil stocks to end 2021 at 1.7 million tonnes 

Ahmad Parveez forecasted that CPO prices to average RM4,131 per tonne for 2021. 

Malaysia Palm Oil Council (MPOC) CEO Datuk Wan Zawawi lowered his prediction for Malaysia’s CPO production in 2021 to 18.4 million tonnes from 19.6 million tonnes, due to Covid-19 restrictions and labour shortage. 

Ahmand Parveez said planted palm oil area in Malaysia fell 900,000ha to 5.77 million ha in the first nine months of 2021. Of the total planted areas, 45.6% are located in Peninsular Malaysia, 26.5% in Sabah and 27.9% in Sarawak. 

In terms of ownership, private and government or state agencies own 73% of the estates, with the remaining owned by independent and organised smallholders. He projects 2021F CPO price to average RM4,100 per tonne. 

In the meantime, MPOC regional manager Desmond Ng said the palm oil demand and import in China is dependent on soybean oil output in China. 

He said China import of palm oil grew 310,000 tonnes to 3.78 million tonnes in the third quarter of 2021 (3Q21), driven by high discount of refined bleached and deodorised palm olein against soybean oil and recovery in the hotel, restaurant and café sector.

He expects the palm oil demand to increase by 100,000 tonnes to 6.9 million tonnes in 2021.

Meanwhile, Head of Oil World Thomas Mielke forecasts that world production of four major vegetable oils to grow seven million tonnes in 2021/22 (largest growth rate in four years) and predicted that this will push edible oil prices lower. 

He anticipates the global output of palm oil to rise up to four million tonnes in 2021/22 driven by Indonesia 1.7 million to two million tonnes, Malaysia one million to two million tonnes, and others 800,000 tonnes. 

He added that the lack of new plantings will slow the growth in new mature areas to only 400,000ha to 500,000ha next year versus the annual growth of 0.9ha to one million ha up till 2018. 

He predicts Malaysia would produce 18.2 million tonnes of palm oil in 2021F and expects usage of vegetable oils for energy purposes to rise to 48 million tonnes from 1.5 million tonnes in 2021, accounting for 18% of world consumption of 17 oils and fats. 

“Overall, the current high edible oil prices are not sustainable and that prices should decline in January or June next year, triggered by increase in production and stocks,” he said. 

Indian Vegetable Oil Producers’ Association VP Vipin Gupta revealed that palm olein import has negatively impacted the capacity utilisation and refining margins of Indian refineries.

“India is likely to reduce palm oil olein imports beyond December 2021 as the temporary removal of import restrictions on refined palm oil is set to end at the end of the year,” he said.