CPO prices to stay soft as production outpaces demand

KUALA LUMPUR: Crude palm oil (CPO) prices are expected to stay softer as production is likely to outpace demand this year, said RAM Rating Services Bhd.

CPO prices averaged around RM2,467 per tonne in the first quarter (1Q) 2018, falling about 22 per cent year-on-year, but in the same period last year, prices were largely above RM3,000 per tonne.

"This was due to low industry stock levels in the aftermath of the El Nino weather condition in 2015/2016.

“We maintain our full-year price expectations at RM2,300 per tonne/RM2,500 per tonne for 2018 as production is seen to outpace demand,” the rating agency said in a statement.

Malaysia, the second largest producer of CPO, clocked in a higher production of 6.06 million tonnes in the first four months of 2018), a nine per cent hike, year-on year (YoY), while palm oil inventories jumped 35 per cent, YoY, to 2.17 million tonnes, as at end-April 2018.

The Malaysian Palm Oil Board projected local output to rise three per cent, YoY, to 20.5 million tonnes this year while the Indonesian Palm Oil Association anticipated a 10 per cent, YoY, growth in the production of CPO and palm kernel oil.

Indonesian CPO exports slipped three per cent, YoY, in the first two months of this year due to weaker demand from China, the European Union and India.

Nevertheless, Malaysia's palm oil exports increased sharply by 20 per cent, YoY, in the first four months of this year, surpassing the increase in output during the period.

Exports, supported by demand from India, China, Pakistan and the Netherlands, benefited from the government's temporary suspension of export tax from Jan 8, 2018 to end-April 2018.

“Exports are, however, expected to weaken, going forward, due to the resumption of the export tax and the steep hike in India's import duties on palm oil, effective March 1, 2018,” RAM Rating added. - Bernama