Higher production to push CPO prices lower


Industry production to peak in August and September. (File pic: Harvesting at a Felda oil palm estate)

PETALING JAYA: Crude palm oil (CPO) prices in the third quarter of this year (3Q22) are expected to remain lower than previous quarters as industry production goes into a peak period, says industry expert Sathia Varqa.

Varqa, who is an owner of Singapore-based Palm Oil Analytics, expects the CPO futures active month contract to trend between RM3,800 to RM4,200 a tonne in the July-September period in anticipation of higher production in August to October this year.

“Expectation of higher production in August to October should push prices lower but seasonally prices move higher towards the end of the year,” he said adding CPO will trade nearer to RM4,200 a tonne in 4Q22.

“Malaysian palm oil stock levels, which is the most sensitive variable to pricing, is projected to remain below two million tonnes for the third successive year at around 1.70 million tonnes to 1.80 million tonnes the end of this year.

“This would push prices up in the fourth quarter,” he said.

With Indonesia aggressively refining policies to spur exports to deplete its stock levels, Varqa opined Malaysia will increasingly lose market share.

 Plantation Industries and Commodities Minister Datuk Zuraida Kamaruddin said CPO prices are expected to range higher at between RM5,000 and RM5,500 per tonne in 4Q22. “This is due to the resumption of Indonesia’s palm oil export levy beginning Sept 1, and the expected decline in palm oil production in the fourth quarter,

“The biggest challenge to palm oil pricing comes from the sporadic export policy announcements by the Indonesian government triggering massive price volatility,” he explained.

Jakarta waived its palm oil export levy until the end of August to boost shipments and reduce its overflowing stockpiles.

In the second half of this year, Varqa expects CPO prices to remain volatile given the ongoing Russia-Ukraine war.

“Any peace settlement between Ukraine and Russia will bring prices lower very rapidly,” Varqa warned.

Given that Black Sea ports are set to reopen to allow commodities to reach demand market, he believes the resumption of sunflower oil exports from the region would negative impact the edible oil market including palm oil prices as well.

The benchmark CPO futures contract closed RM58 lower at RM3,636 yesterday driven by lower exports for the first 25 days of the month.

A trader with a local futures brokerage said any upside to CPO prices will limited by the bearish supply fundamentals of the CPO market.

Meanwhile, Plantation Industries and Commodities Minister Datuk Zuraida Kamaruddin said CPO prices are expected to range higher at between RM5,000 and RM5,500 per tonne in 4Q22.

“This is due to the resumption of Indonesia’s palm oil export levy beginning Sept 1, and the expected decline in palm oil production in the fourth quarter, she said in a statement, Bernama reported.

According to Zuraida, the CPO price rose by 55.9% to RM6,330 per tonne during the January to June period from RM4,061.50 per tonne in the same period last year.

She noted the recent move by Jakarta to scrap its export levy for all palm oil products until Aug 31 in a fresh attempt to boost exports and ease high inventories would imply that CPO prices are likely to remain weak for most of the 3Q22.

“This is inevitable in light of stiffer competition from Indonesia – the world’s largest palm oil producer – in its quest to flush out as much excess palm oil as possible from its existing stockpile.

“The average CPO price for 3Q22 is projected to range between RM4,800 and RM5,200 per tonne. For the record, the daily CPO price declined to RM3,631.50 per tonne or 24.9% on July 15 from RM4,838.50 per tonne on July 1,” she added.

Zuraida pointed out that her ministry has been actively monitoring developments in the industry and will continue to ensure that palm oil continues to remain a major contributor to national economic growth, benefitting all, especially smallholders and industry players.

“We have remained relentless in our efforts to rebut and correct any misconceptions raised by those out to discredit the goodness of palm oil via their anti-palm oil campaigns.

“I have personally headed numerous trade missions to several countries to meet industry players there and create a greater awareness on the numerous benefits and uses of palm oil, apart from being used as cooking oil,” she said.

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