MPOA: New factors may hit CPO price

  • Business
  • Thursday, 20 Feb 2003


THE current bullishness in the price of crude palm oil (CPO) will be somewhat affected by the middle of this year following emerging “dampening” factors, particularly on the international front, according to Malaysian Palm Oil Association (MPOA) chief executive M.R. Chandran. 

Based on the latest feedback from international edible oil players, Chandran said: “There are growing concerns over the possibility of higher soya bean production in the US and Brazil, India slashing its palm oil exports while economically troubled Indonesia will likely increase its palm oil exports this year.” 

Chandran told StarBiz in Kuala Lumpur yesterday that these new emerging factors could upset the CPO price equation which would not likely be sustained at current price levels of over RM1,600 per tonne.  

“Of course, market analysts and players were bullish before about the CPO price shooting even to RM1,800 per tonne by the 1st quarter of this year, but the new factors might upset the equation, putting a slightly different scenario on the price factor and local export prospects. Malaysia might face a scenario where stocks of its major rival soya bean could be increased by 4 to 8 million tonnes by year’s end once major soya bean producers like the US, Brazil and Ar- gentina release their final crop figures by the middle of this year,” he said. 

In addition, India, one of the largest importers of Malaysian palm oil, has also been hit by the monsoon season that badly affected its local crops production. This will erode the income and consequently the purchasing power of 70% of India's population who are dependent on agriculture. 

“One of the first cutbacks I believe will be in the purchase of palm oil,” Chandran said, adding that some forecasts put consumption at 200,000 to 300,000 tonnes lower in India this year. 

In Indonesia, the world's 2nd largest palm oil producer, production is expected to grow by 5% to 6% this year. The country produced about 9.2 million tonnes last year.  

“As the country is facing economic difficulties, I believe less palm oil will be consumed domestically, but In- donesia may be keen to increase exports to earn better foreign ex- change,” Chandran said. 

Unless demand picked up or some weather-related disasters struck worldwide, and in view of a projected larger supply of edible oil stocks namely, soya bean and palm oil by the middle of this year, he said “we don't see a situation where the current strong CPO price will hold out.”  

As at Jan 28 this year, palm oil is still traded at a US$72 discount per tonne against soya bean oil.  

“This is an improvement against November 2002 when the discount was even higher at US$135,” he said. 

On the local front, Chandran said Malaysia's palm oil production was expected to rise to 12.2 million tonnes from last year's 11.9 million tonnes, representing a slight growth of some 2.5%.  

“The low growth rate is due to the biological stress factor as Malaysia has been actively producing above 10.5 million tonnes per annum over the past four years,” he said. 

In terms of actual quantum, peninsular Malaysia produced 7 million tonnes, Sabah 4.2 million and Sa- rawak 700,000 last year. In 2002, the peninsula's palm oil production dropped by 6%, but Sabah and Sa- rawak saw 12% and 21% increases respectively. 

According to Chandran, Malaysia needs to get its act together by looking at new market opportunities to stimulate better demand for palm oil, especially by emphasising on the healthy goodness of the golden oil. 

With this in mind, the association is organising a two-day seminar on Good agricultural practice and food safety in palm oil industry next Monday.  

“We are anticipating about 300 local and overseas participants from captains of industry, palm oil millers, palm kernel crushers, mill engineers, scientists, policy makers and traders in the palm oil business,” he said.  

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