RAM Ratings sees crude palm oil trading RM2,300 to RM2,500

KUALA LUMPUR: RAM Rating Services Bhd is maintaining its outlook on crude palm oil (CPO) prices for the second half of 2014 (H2,2014) as it expects prices to trade at an average of between RM2,300 and RM2,500 a tonne.

The ratings agency kept its CPO forecast for the full year around RM2,500 to RM2,600 a tonne.

 

In the second quarter of 2014  (Q2, 2014), CPO price averaged RM2,572 a tonne, largely within its expectations.

 

“Despite weather-related supply concerns in Q1, 2014 which resulted in prices rallying to a high of RM2,900 a tonne, Malaysia's total CPO production exceeded the Malaysian Palm Oil Board's (MPOB) forecast by 4% in H1, 2014,” it said on Tuesday.

 

RAM Ratings also expected a delay in the much anticipated El-Nino weather conditions to end-2014, narrowly avoiding the peak production season.

 

Based on these factors, it expected its CPO production forecast for both Malaysia and Indonesia at a combined 48 million tonnes to be achievable.

 

On the implementation of both Malaysia's and Indonesia's bio-diesel mandates, the ratings agency said the proposal faced some difficulties.

 

Malaysia had postponed the nationwide implementation of its B5-biodiesel mandate by two months to September 2014. Indonesia's bio-diesel mandate also had not performed within expectation.

 

“We understand that key stumbling blocks for these two countries are the lack of facilities and logistic issues, especially in Indonesia - an archipelago. This, combined with the delayed El Nino, is expected to drive the CPO stockpile upwards, limiting the upside for CPO prices for the remainder of the year,” it said.

 

RAM Ratings pointed out CPO prices had been on a downward trend towards end-June 2014, dropping to around RM2,450 a tonne and recently, closer to RM2,300 a tonne.

 

At midday on Tuesday, CPO for third month delivery fell RM6 to RM2.261 per tonne.

 

In respect of substitute and competing oils, it expect a good harvesting year for other oilseeds, particularly soybean.

 

Soybean production is forecast to increase 15.2% on-year in 2014. It said that based on the positive outlook on crop harvesting, global vegetable oil prices have fallen, with the prices of soybean and rapeseed oils dipping 6.6% and 9.4%, respectively, since March 2014.

 

Accordingly, the premium gap between soybean oil and CPO has narrowed. This could encourage a switch from CPO to soybean oil, suppressing CPO prices.