CPO prices may climb on biodiesel demand

NEARING BOTTOM: Weather-induced supply disruption can also play role, says expert

PETALING JAYA: PALM oil prices, which had been on a downtrend since mid-March, are likely nearing bottom as energy demand increasingly kicks in.

Yesterday, the third month benchmark for crude palm oil (CPO) futures on the Bursa Malaysia Derivatives Market traded RM15 lower to close at RM2,417 per tonne.


MPOC CEO Tan Sri Yusof Basiron (second from right) meeting with Meteorological Department head of climate centre Jailan Simon yesterday. With them are Ganling Sdn Bhd director Ling Ah Hong (right) and CIMB Futures Sdn Bhd broker representative Loh Kin Kien. NST photo by Halim Salleh
“Palm oil prices have been coming down for almost three months due to a build-up in supplies. However, the current level of around RM2,400 per tonne against Brent hovering around US$105 per barrel should become increasingly viable for palm biodiesel production. 

"The Indonesian and Malaysian governments are now able to meet biodiesel mandates with minimal subsidy,” said CIMB Futures Sdn Bhd broker representative Loh Kin Kien.

“Therefore, palm oil prices would be well supported in the region of RM2,300 per tonne but require a weather-induced supply disruption to significantly uplift prices,” he said after presenting his paper at the “Talk on El Nino — Effects and Implications 2014” organised by the Malaysian Palm Oil Council (MPOC), here, yesterday.

Also present were Meteorological Department head of climate centre Jailan Simon and Ganling Sdn Bhd director Ling Ah Hong. 

Jailan confirmed that the chances of El Nino materialising at the end of year are quite high. “The surrounding ocean is warming up. An El Nino is in the making.” When asked on the impact of this phenomenon, he replied it would most probably be weak to moderate.

“The full brunt of El Nino is mostly likely to be felt in the first quarter of 2015. We could see impact in Sabah, northern Sarawak and the east coast of the peninsula if the El Nino’s impact is moderate to strong,” he added.

A severe El Nino would lead to prolonged dry spells in Indonesia, Malaysia and Thailand, where 88 per cent of the world’s oil palm is grown. Dry and hot weather hinders growth of leaves and fruit of oil palm trees, thereby curbing yields. 

During the first four months of this year, local CPO production totalled 5.84 million tonnes, 4.4 per cent more than 5.59 million tonnes a year ago. 

Ling thinks that fresh fruit bunch yields would slide in the second half of the year and is forecasting Malaysia’s CPO  output for the year to only add up to 19.30 million tonnes, relatively flat from last year’s 19.22 million tonnes.

His prediction is well below that of  Malaysian Palm Oil Board’s forecast of 19.52 million tonnes. Ling sees CPO prices rising again to as high as RM2,900 per tonne provided Brent trades at current level of between US$95 to US$110 per barrel.

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