KUALA LUMPUR: RAM Rating Services expects crude palm oil (CPO) price to average between RM2,100 and RM2,300 a tonne as record vegetable oil production will continue to suppress CPO prices.
The ratings agency said on Tuesday it had revised its price outlook for the fourth quarter of 2014 based on these expectations.
“Accordingly, we have also revised our price forecast for the full year to around RM2,400 to RM2,500,” it said.
To recap in Q3,2014, CPO price averaged RM2,21 a tonne. The ringgit-denominated price came in 3.9% below the lower end of its RM2,300 to RM2,500 projection.
RAM Ratings pointed out that in August 2014, the daily CPO price plunged to a five-year trough to below RM2,000.
The drastic and unexpected drop reflected the competing oil seeds such as soybean, which had seen a bumper harvest.
It expected production of these oil seeds (including rapeseed, sunflower seed, etc.) to be around 530 million tonnes for the nine months of 2014 (which is an increase of 4.5% compared to full-year 2013).
RAM Ratings said Malaysian palm oil stock had risen to above two million tonnes since August 2014 as the industry moved into its peak production cycle and production was unaffected by earlier anticipated El Nino weather conditions.
The country’s CPO production had exceeded the Malaysia Palm Oil Board’s (MPOB) forecast for the nine months of 2014 by 3.16%.
“As 4Q is still a seasonally high production period, we do not expect the stockpile to ease substantially. As such, CPO prices are not likely to see any significant upside,” it said.
On Malaysia’s biodiesel programme, RAM Ratings said the mandate took off in Peninsular Malaysia in November and it will be implemented in Sabah and Sarawak in December.
The ratings agency also said that in a surprise move, the government had upped the biodiesel content from 5% (B5) to 7% (B7).
“Such an increase could result in an additional 200,000 tonnes of CPO consumption per annum,” it said.
In Indonesia, the pace of the rollout of the B10 biodiesel mandate has been slower than expected.
This is amplified by the recent sharp drop in crude oil prices, which has raised concern over the economic viability of biodiesel as a substitute for mineral diesel, thus reducing price support for CPO.
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