Hope for a rosier year ahead for Malaysian commodities after volatile 2016

In the first half of 2016, crude palm oil (CPO), tin and gold prices recovered but rubber and that of crude oil remained in the doldrums.

KUALA LUMPUR: The year 2016 saw the commodity sector, except for crude palm oil and metals such as tin and good, reel under the pressure of lower prices, sluggish demand, volatile global uncertainty and weaknesses.

In the first half of 2016, crude palm oil (CPO), tin and gold prices recovered but rubber and that of crude oil remained in the doldrums.

Nonetheless, various supply-demand drivers lifted selected commodity prices into the third quarter of this year and this should lead to a price recovery in 2017.

During the year, like many other commodities in the world, palm oil was affected by the El Nino and La Nina phenomenon, bearish demand routed by slower growth in global markets, geo-political issues and currency fluctuation.

The El Nino phenomenon disrupted CPO supply by an average 12% in Malaysia which saw volatile prices as global demand outstripped supply.

CPO prices ranged between RM2,450 per tonne in the first half of 2016 and RM2,650 in the second half.

During the year, the Roundtable on Sustainable Palm Oil (RSPO) came down hard on palm oil suppliers by suspending or causing some suppliers to withdraw their products from their buyers’ supply chains.

The knee-jerk reaction from a segment that attracts premium prices for RSPO products caused the premium to rise by more than 100%.

The ringgit’s volatility also played a role in supporting palm oil prices besides the various supply-demand factors.

Meanwhile, Malaysian palm oil is expected to see a 10% contraction in production this year to 17.8 million tonnes as producers continue to struggle with lower output from the harsh El-Nino weather in 2015 across South-East Asia.

Leading industry analyst and ISTA Mielke GmbH executive director Thomas Mielke said that oil palm yields were expected to recover in Malaysia next year, albeit at a slow pace.

“The industry needs to wait until 2018 to see yield normalise after being badly impacted by the prolonged drought caused by the El Nino weather,” he told Bernama.

Saying that palm oil prices were undervalued, Mielke had forecast a rally soon which will see the commodity fetching between RM2,900 and RM3,000 per tonne.

Low palm oil stocks, export supplies and a slower-than-expected recovery in production saw CPO prices touch a high of RM3,098 per tonne in 2016 against RM2,508 last year. — Bernama