PETALING JAYA: Palm oil industry experts generally expects crude palm oil (CPO) production will increase while the average CPO price could soften further this year.
This is the consensus at the recently concluded 34th Palm and Lauric Oils Price Outlook Conference and Exhibition (POC2023) organised by Bursa Malaysia here, which was well attended by some 2,000 delegates and speakers worldwide.
TA Research in its preview on POC2023 said LMC International chairman Dr James Fry has pegged CPO price to average at RM3,760 per tonne in 2023 and CPO futures will be RM3,350 per tonne by year-end, being pulled down by gas oil prices.
Fry pointed out the Russia-Ukraine war has pushed the gas oil cracks to record high levels, thus making it the price band floor for vegetable oil prices, instead of the Brent crude oil.
He also viewed the transparency and prompt publication of Malaysia stocks will continue to play the key role in setting up the palm oil-gas oil (Pogo) price spread, which determines voluntary biodiesel blending based on the prices of palm oil and heating oil, and is a widely watched metric in the Malaysian and Asian biodiesel community.
“Indeed, a study indicates that the relationship between the Pogo and the Malaysian Palm Oil Board’s stocks is very much better compared with those stocks in Indonesia,” he said.
TA Research, however, noted Godrej International Trading and Investments Pte Ltd director Dorab Mistry was the most optimistic among the speakers at POC2023.
Dorab expects the CPO futures in Malaysia will trade between RM4,000 and RM5,000 per tonne from now until August as “Indonesia’s B35 biodiesel, which is 35% blend of palm oil-based fuel mandate will keep supplies tight in the first half of 2023.”
He also mentioned a new El Nino climate pattern could drive prices higher so as to destroy demand, while if there’s no El-Nino, prices will fall after August.
Dorab expects world food demand during 2022-2023 period should expand by three million tonnes from 2021 and 2022 levels.
He also highlighted that climate change will be the biggest factor in influencing the market prices trend.
TA Research, which maintained its “neutral” call on the plantation sector said its average CPO price estimate stands RM4,000 per tonne in 2023.
“We would review our assumptions if South American’s soybean supply turns out lower than market’s expectation and strong El-Nino event set in,” the research house noted.
Meanwhile, RHB Research said sustainability will continue to be the name of the game for plantation players, especially with the new European Union (EU) deforestation law, which will be effective from December 2024 as well as the scrutiny on labour practices in the industry.
“To comply with the EU deforestation law, planters will need to step up their efforts via implementation of industry-wide real time digital traceability, ensure collaboration of information through adoption of cloud technologies and to get regional government agencies or regulators on board to help the industry comply at the lowest cost,” said the research firm.
Most importantly, RHB Research said smallholders cannot be left behind in the move to sustainability, given nearly 40% of palm oil is produced from smallholders’ plantations.
The research unit also maintained a “neutral” call on the sector with its CPO price assumption at RM3,900 per tonne for 2023.RHB Research noted that it continues to advocate buying stocks of integrated players such as Kuala Lumpur Kepong Bhd, IOI Corp Bhd, Wilmar International Ltd and Golden Agri-Resources Ltd.