Experts expect CPO to peak at RM2,600

This is written by my colleague Zaidi Ismail.

KUALA LUMPUR: Crude palm oil (CPO) prices are expected to trade as high as RM2,600 a tonne this year due to higher crude oil prices leading to more palm oil-based biodiesel use and demand overtaking supply.

CPO prices are hovering at the RM2,300 to RM2,400 level compared to an average of RM2,900 last year. 

Industry specialists presented mixed views on the price outlook at the conclusion of the 24th annual Palm and Lauric Oils conference (POC2013), here, yesterday. This was attributed to factors like higher soyabean production in South America and the El Nino weather effects. 

In his paper, LMC International Ltd chairman Dr James Fry had forecast CPO prices to touch as high as RM2,600 by June. 

Crude oil is now more expensive than CPO and this may boost palm oil-based biodiesel use. "If I were Petronas or Pertamina, I would be rushing to buy local CPO to go into blending palm oil with diesel. This would help stocks decline and see CPO prices hitting RM2,600 by the middle of the year," Fry told some 2,000 participants from more than 50 countries attending the POC2013.

Indonesian Palm Oil Board chairman Derom Bangun shared Fry's views, saying global demand has already overtaken supply and there is higher use of biodiesel now in Europe. 

"I expect CPO prices to touch around RM2,400 by June and slightly higher in the second half of the year," said Derom. 

However, London-based Godrej International Ltd director Dorab E. Mistry wasn't so optimistic. He said the palm oil boom over the last five years is over as oil palm trees are expected to be at peak production by September 2014. 

"I expect prices to be at RM2,300 and RM2,500 by end-April. However, it can go as low as RM1,800 if crude oil prices go as low as US$80 a barrel. June and July will be a critical point as to where CPO prices will be heading for the rest of the year," said Mistry, who did not provide a forecast for the second half of the year. 

He said plantation companies will continue to reap handsome profits irrespective of CPO prices as production costs are at around RM1,500 a tonne.