Stronger CPO prices seen in the near term

CGS-CIMB Research forecasts CPO prices to trade between RM2,200 and RM2,500 per tonne this month.

PETALING JAYA: Stronger palm oil demand from India, coupled with the suspension of the export tax for crude palm oil (CPO) in Malaysia from June till the end of the year, is positive for CPO prices in the near term.

CGS-CIMB Research forecasts CPO prices to trade between RM2,200 and RM2,500 per tonne this month.

The research house said the average CPO price grew 16% month-on-month (m-o-m) and 23% year-on-year (y-o-y) to RM2,413 per tonne in June due to the expected recovery in palm oil exports, which is expected to offset incremental supply.

Based on the average export statistics by cargo surveyors SGS, Intertek Testing Services and Amspec Malaysia, palm oil exports of the country likely grew 26% m-o-m and 24% y-o-y in June to 1.73 million tonnes, exceeding the historical average of June monthly palm oil exports of 1.4 million tonnes in the past ten years.

Higher exports were likely due to restocking activities after the gradual reopening of key importers of palm oil.

“The stronger exports could be due to restocking activities, following the easing in June of movement restrictions imposed by many governments around the world as new cases of Covid-19 subsided.

“This improved the demand for palm oil from the hotel, restaurant and catering sectors, as well as biodiesel usage due to higher diesel consumption.

“We suspect there could also be some restocking activities by importers due to concerns of a potential second Covid-19 wave, ” CGC-CIMB Research said.

On the back of expectations of higher exports, the research house estimated that Malaysia’s palm oil inventory fell by 2% m-o-m and 18% y-o-y to 1.99 million tonnes as at end-June.

The official figures will be released on July 10.

Meanwhile, CGS-CIMB Research expects a 12% m-o-m rise in CPO output in June to 1.85 million tonnes, which is stronger than the historical trend and would rank as the strongest production estimate for last month.

“This could be due partly to Hari Raya being celebrated earlier in May, and as such, CPO production this month did not see the usual dips, ” it said.

Over the past 10 years, CPO production has posted an average of a 1.4% m-o-m decline in June due to Hari Raya celebrations.

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