Higher palm oil price in sight

On palm oil production, Dorab expects Malaysia

KUALA LUMPUR: Oil palm producers whose profits were affected by the 15% drop in crude palm oil (CPO) price last year, will get a short relief as the commodity is expected to climb back to RM2,500 per tonne in May from RM2,380 per tonne currently on lower production and reduced stocks outlook, said international palm oil expert Dorab Mistry.

However, he warned that the improved sentiment in CPO price in the first half 2015 could be short lived and will reverse back to trend lower in the second half of this year on continued bearish fundamentals.

“I believe that CPO price will drop again after July and possibly trade as low as RM2,100 per tonne or US$600 per tonne for RBD palm olein by year-end,” said Dorab, a director of Godrej International Ltd, at the close of the three-day Palm Oil Conference (POC 2015) organised by Bursa Malaysia here yesterday.

He also expects that from August, palm oil stocks will rise again leading to the fall in CPO prices presuming that the Brent crude oil prices are trading between US$50 and US$75 per barrel.

The 2015 CPO price forecast by Dorab also mirrors the prediction by London-based LMC International Ltd chairman Dr James Fry who described 2015 as “the year of two halves for CPO prices.”

Fry said weak palm oil output would push Malaysia’s palm oil stocks to below 1.6 million tonnes in the second quarter of this year.

“But domestic palm oil inventory will rise above 2.5 million tonnes again in the fourth quarter in 2015 as the year-on-year production cycle will return again the the second half this year.

“This can be mitigated should discretionary palm methyl ester sales (for use in biodiesel production) are viable with lower CPO prices or a dramatic policy is put in place to boost the local biodiesel sales ,” added Fry.

He also gave out two scenarios. If the Brent crude oil is traded at US$60 per barrel, the average CPO price would be in the range of RM2,260 or US$625 per tonne in the first half of this year. In the second half 2015, the CPO average will be at about RM1,770 or US$485 per tonnes respectively.

Fry said: “The palm oil industry must learn to accept the realities of the lower global crude oil prices.

“The world responded to the demand for biodiesel but until now, many still do not realise how much the high crude oil prices have underpinned the palm sector.”

“I am sorry to be a bearer of bad news (to oil palm producers) but the truth is that today you are faced with lower crude oil prices and also, no palm oil export taxes.”

Dorab, meanwhile, said there was a market talk on a move by palm oil top producers, Malaysia and Indonesia to lower the threshold price for their respective palm oil export taxes. The current CPO threshold price to trigger the export tax to be imposed in Malaysia is at RM2,250 per tonne while in Indonesia is at US$750 per tonne.

“This move will help to restore the refining margins of palm oil refineries badly affected by the current zero export taxes and for the government to subsidise their palm biodiesel programmes thus pushing the palm export prices as well,” he added.

On palm oil production, Dorab expects Malaysia “at best” will produced 19.7 million tonnes this year, similarly to last year or slightly lower while Indonesia, the world’s largest CPO producer at about 31.5 million tonnes.

“Lower palm oil production will shrink palm oil stocks to below 1.5 million tonnes from April to July for Malaysia. Indonesian stocks will also eased to 2.5 million tonnes but set to expand to 4.65 million tonnes in December,” added Dorab.