PETALING JAYA: The falling price of crude palm oil (CPO), which has dropped below RM2,000 a tonne, is hurting planters.
At RM1,985 a tonne yesterday, the vegetable oil is trading near its lowest level in six months.
Maybank Research, in a report, expects Malaysian-based planters to see continued earnings pressure, mainly on still weak spot CPO average selling prices (-19% y-o-y).
The research house is expecting integrated players to still fare relatively better as they would benefit from low raw material costs.
“Given that the present spot CPO price is just a tad above cost, we expect a substantial decline in earnings in the first quarter for most companies,” Maybank Research said.
“Positively, on foreign exchange (forex), companies with relatively higher US-dollar debt exposure (mainly IOI Corp Bhd) are likely to benefit from unrealised forex translation gains as the ringgit strengthened against the dollar during the quarter, but the gains are unlikely to be significant,” it added.The cheaper price of CPO, however, has also encourage buyers to increase their purchases.
“The low price and more aggressive government policy like the biodiesel mandate helps us to clear stocks, so CPO prices have improved. On top of this, less soybean crushing in China due to the African swine fever and the 25% import tariff on US soybean are likely to help boost demand for palm oil,” CGSCIMB’s palm oil research analyst Ivy Ng told StarBiz.
In her report, Ng said stronger demand from China and India had caused CPO exports to grow 2% month-on-month (m-o-m) and 8% year-on-year (y-o-y) to 1.65 million tonnes last month.
This is slightly higher than her forecast of 1.63 million tonnes.
“The good news is that the April export figure was the highest ever for that month recorded by Malaysia, suggesting that the low CPO price had helped boost demand,” she said in the report.
Ng further noted that Malaysia’s palm oil imports had declined 53% m-o-m to 62,000 tonnes in April 2019, helping to cut stockpiles.
“The sharper drawdown in CPO stocks in Malaysia for April is likely to be supportive of prices amid concerns of lower soybean oil prices (key substitutes) and escalating US-China trade tensions, which may impact growth,” Ng stated in her report.
She also noted that the current palm oil stock of 2.73 million tonnes remained high relative to the five-year historical average of 2.07 million tonnes.
Ng expects the CPO price to trade in the range of RM1,900-RM2,300 per tonne this month.
But the plunging price of soybean to a ten-year low is likely to curb near-term upside for CPO.
The soybean price yesterday extended losses to continue its downtrend and fell to the lowest level in more than ten years due to the trade war between America and China that has heated up once again.
Analysts said that prior to this, soybean and CPO price movements were closely linked and that they traded at a close discount range with each other.
However, the heightened trade war rhetoric between the two global superpowers has appeared to put an end to this correlation for the time being because of China’s buying power and influence on the edible oil market.
China is presently the world’s largest consumer and importer of both CPO and soybean.
Bloomberg reported that traders fear that China would respond to the latest US trade tariff increase by raising retaliatory duties on American farm imports from the current 25% and by cancelling purchases that have already been made.
The fear is that China may refrain from buying more US soybean, and that this would drive up stockpiles just as farmers plant the next crop.
Traders are also skeptical over the effectiveness of US President Donald Trump’s plan to purchase excess supplies of US soybean.