Crude palm oil price to remain higher on tight supply, say research firms

KUALA LUMPUR, Aug 12 ― Research firms believe the price of crude palm oil (CPO) would stay higher for quite some time given its tight supply situation which would likely remain at least until the third quarter of 2021.

Malaysia’s July 2021 palm oil inventory decreased by 7.3 per cent month-on-month (m-o-m) to 1.5 million tonnes, representing a three-month low inventory level since March 2021.

In tandem, on year-on-year basis, the stockpiles plunged by 11.9 per cent year-on-year on the back of lower opening stock of 1.61 million tonnes (-15.1 per cent year-on-year).

“Moving forward, we foresee that tight inventory level to continue to add upward pressure on CPO price movement and while we expect the CPO price will soften in the second half of 2021, we opine it would not be significant in view of unresolved labour shortages due to border closure and slow production growth,” MIDF Research said in a note today.

Last month the average CPO spot price increased by 9.9 per cent m-o-m to RM4,207.95 per tonne from RM3,828.84 per tonne in the previous month.

 The highest CPO price was recorded on July 27 at RM4,662.50 per tonne and this is primarily in view of  the tight inventory level and a decrease in production.

On production, the July 2021 production level was lower by 5.2 per cent m-o-m to 1.52 million tonnes (from 1.61 million tonnes in June) which was the weakest monthly level observed since April 2021 despite the better weather conditions.

The lack of labour will lead to delays in harvesting activities which will impact the quality of fruit bunches.

“Nonetheless, looking at the current vaccination rate which has accelerated robustly and has reached 25.8 million vaccine doses cumulatively (as of Aug 11, 2021), we believe the government will be able to open the border in 2022.

“As a result, local plantation players will be able to bring back foreign workers which are expected to aid the labour shortage issue and in the longer term, we expect production to increase significantly as smallholders would be more aggressive in applying fertiliser during periods of high CPO prices and current better economic conditions.”

Meanwhile, CGS-CIMB, which set a neutral call on the sector, foresees lower exports to China and India possibly due to high CPO prices.

“Palm oil exports fell one per cent m-o-m and 21 per cent y-o-y to 1.4 million tonnes in July 2021 due mainly to weaker demand from China and India.

“The weaker exports could be due to affordability issues as well as buyers continuing to purchase hand-to-mouth as forward monthly CPO prices are lower than spot prices.”

The research house projected palm oil stock to rise 4.5 per cent m-o-m to 1.56 million tonnes by end-August 2021 and CPO prices to remain firm at RM3,500-RM4,500 per tonne in August amid low global edible oil inventories. ― Bernama