KUALA LUMPUR: The price of crude palm oil (CPO) is expected to improve to between RM2,240 and RM2,360 a tonne this year if the benchmark Brent crude oil continues to trade within US$60 and US$65 per barrel, says LMC International Ltd chairman Dr James Fry.
The palm oil industry expert said the price of crude oil sets the floor for CPO prices while the level of CPO stocks determined the premium over Brent crude price.
He said the inverse relationship between CPO stocks and the European Union CPO premium over Brent crude price meant that lower stock levels should raise the premium, which currently stood at US$70 per barrel.
“The US$70 per barrel Brent crude price implies that the floor of the European Union CPO price band will be at US$510 or RM1,950 per tonne at the current exchange rate,” he said at a plenary session themed, “Palm and Major Oils” held in conjunction with the three-day Palm and Lauric Oils Price Outlook Conference and Exhibition 2019 ( POC2019) here today.
Meanwhile, Fry also predicted that global palm oil stocks would reduce by 1.0 million to 1.5 million tonnes this year, provided Indonesia continued with its B20 biodiesel mandate and Malaysia maintained its B10 biodiesel mandate.
“This will be on top of the usual seasonal stock draw down until June this year,” he said.
Fry also expected CPO production growth to be significantly slower in Indonesia this year as the country was expected to lift its biofuel demand for CPO by at least 1.5 million tonnes.
“Besides, China's reduction in soybean oil crushing means palm oil would need to fill the country's soybean oil shortfall,” he added.
Currently, China has reduced soybean imports and crushing activities due to the ongoing Sino-US trade war and the African swine flu outbreak in China which could open up the Chinese market for more palm oil import.
Macquarie Commodities Trading (Shanghai) Co Ltd associate director Ryan Chen said China's palm oil imports was expected to grow 14.2 per cent, year-on-year, to 6.2 million tonnes in 2019.
“This will probably be the largest growth that we have seen over the last 10 years and the demand will mainly be due to the hog flu and competitive CPO prices against other vegetable oils,” he added.
Themed, “Managed Uncertainties, Harvest Global Opportunities”, the three-day POC 2019 which ends today is organised by Bursa Malaysia Derivatives Bhd (BMD) and attended by prominent local and international industry experts who would share their analysis and assessment on the development and challenges impacting the price outlook for palm oil and lauric oils in 2019.
BMD operates the world benchmark for CPO futures contract. - Bernama
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