Call Us : +233 (0) 244 252 859 / +233 (0) 246 466 580
  •  Home
  •     
  • Media
  •     
  • News
2019 CPO Price Trend – Views from Industry Experts
Thursday 28th February 2019

MPOC PALM OIL INTERNET SEMINAR (POINTERS), 18 - 24 FEBRUARY 2019
2019 CPO PRICE TREND – VIEWS FROMINDUSTRY EXPERTS

MPOC’s first POINTERS for the year 2019 was held from 18-24 February, 2019. A panel of experts were engaged to analyze and report the factors that support the recent price increase and forecast CPO price trend for 2019. Besides price forecasting, the papers also covered 2019 global oils and fats supply outlook, Malaysia’s palm oil supply and demand situation, global soybean production and China and India’s edible oil market dynamics.

Price Forecast Summary by Experts

The experts are of the view that the highest and lowest CPO price for the benchmark 3rd month price traded in the Bursa Malaysia Derivative Exchange will move up from the 4th quarter of 2018 to 1st quarter of 2019. Thereafter it will decline slightly. (Refer to the forecast made by one of the speakers)

Table 1: Highest and lowest quarter to quarter CPO price for 4th quarter 2018 and 
              quarterly forecast for 2019 (RM/MT)

 

Q4’2018

Q1’2019F

Q2’2019F

Q3’2019F

Q4’2019F

Highest Price

2,261

2,400

2,350

2,350

2,300

Lowest Price

1,960

2,150

2,050

2,050

2,050

Source: Rabobank

1st Quarter Price Trend

Implementation of B10 mandate by the Malaysian government on 1 February, 2019 helped to lower Malaysia’s high palm oil stock and move CPO price upwards. Apart from this, rising CPO price will be supported by the seasonal decline in oil palm production in both Indonesia and Malaysia. Going by the normal trend, production is expected to drop in the 1st quarter of 2019 and will recover in the months after the period.  Palm oil prices is also expected to improve due to further reduction of Malaysian palm oil stocks as  Indonesia reduces its levy on palm oil exports to zero in December 2018. Other factor that supports CPO price during this period is the extension of Indonesian B20 biodiesel mandate to the non-PSO sector on 1st September 2018. One of the speakers estimated that additional 3-3.5 million MT of palm oil will be used following this revision of the B20 mandate. Strengthening of the USD against MYR and USD will also help to build bullish CPO price for the 1st quarter 2019. (Refer to chart 1 & 2)

Chart 1 : USD and MYR exchange rate           

Chart 2 : USD and IDR exchange rate

http://mpoc.org.my/images/articles/POINTERS-2019-CPO-Prices-Trend-pic1.png

http://mpoc.org.my/images/articles/POINTERS-2019-CPO-Prices-Trend-pic2.png

India’s positive palm oil import outlook in 2019 also favors stronger CPO price. India showed a positive growth trend for palm oil imports when the country cut the effective duty on crude palm oil import from Malaysia, Indonesia and other members of the Association of South East Asian Nations to 44% from 48.4%on 1st January, 2019. Meanwhile, the effective tax on refined palm olein import was cut to 49.5% from 59.4% if imported from Malaysia and to 55%, if purchased from Indonesia or other member-nations of ASEAN.  As a result of this tax revision, India’s palm oil import is expected to increase as it narrowed the duty differential between the import duty of palm oil and the major competing oil, soybean and rapeseed oil whose duty remained unchanged. 
Another key palm oil importer, China, is forecast to increase its palm oil import by 0.3 million MT in 2019 to 5.6 million MT from 5.3 million MT in 2018. Expected reduction in edible oil supply due to lower soybean crushing is seen as the major factor that drives higher palm oil import.

 2nd Quarter Price Trend

Entering the 2nd quarter of 2019, the experts are of the view that CPO price will decline slightly. Rising soybean production from Argentina whose production comes onstream in April will start the declining price trend for CPO. For 2018/19, Argentina soybean production is forecast to rise by 13.2 million MT or 35.0% to 51.0 million MT as it recovers for the drought-stricken weather condition in 2017/18. Meanwhile, Brazil soybean production which will come onstream in February is projected to drop by 2.4 million MT or 2.0% to 117.0 million MT as some of the soybean producing area is affected by dryness. Expected higher US production despite higher carryover stocks due to China-US trade war is another factor suppressing CPO price increase. USA soybean production which comes onstream in July is forecast to rise by 5.2 million MT or 4.3 % to 125.2 million MT in 2018/19 season.

Chart 3: Global soybean production – 2016/17, 2017/18 production & 2018/19 forecast             

Chart 4: Palm Oil vis-à-vis Gas Oil price

http://mpoc.org.my/images/articles/POINTERS-2019-CPO-Prices-Trend-pic3.png

http://mpoc.org.my/images/articles/POINTERS-2019-CPO-Prices-Trend-pic4.png

Narrow spread between palm and gas oil prices is another bearish factor which is expected to limit CPO price increase in 2019. The spread of palm oil and gas oil has tightened in the beginning of 2019. Reduced price spread will lead to palm oil prices to be less competitive compared to mineral oil which reduces the feasibility of discretionary palm based biodiesel blending.

The bearish CPO price environment after 1st quarter 2019 will also be supported by higher production of Malaysian and Indonesian palm oil for the months after 1st quarter 2019. The higher production will put pressure on the palm oil stocks available in the world market. MPOB forecast that Malaysia’s CPO production will rise by 4% or 0.78 million MT to 20.30 million MT in 2019 from 2018 production of 19.92 million MT. Meanwhile, MPOC forecast that Indonesia’s production will increase by 4.3% or 1.8 million MT to 42.8 million MT from 41 million MT for the same period in review.  

There is a consensus among the experts that palm oil production for 2019 may be lower than current estimates as there is a possibility of the occurrence of strong El Nino. EL Nino will bring heavy rain to the world’s major global palm oil production region, Malaysia and Indonesia. The heavy rain will impede harvesting and transport of palm fresh fruits bunch to the mills because of bad road conditions. The deduction is made based on the National Oceanic and Atmospheric Administration (NOAA)'s January 2019 report which reported that El Nino is expected to form through the Northern Hemisphere 2018-2019 winter season (~90% chance, January - March 2019) and through spring (~60% chance, April to June 2019).

Chart 5: National Oceanic and Atmospheric Administration ( NOAA) January 2019 Report

http://mpoc.org.my/images/articles/POINTERS-2019-CPO-Prices-Trend-pic5.png

Global Oils & Fats Supply & Demand Review

MPOC forecast that global imports of edible oil will climb by 3.82% or 3.4 million MT to 91.0 million MT in 2019. The higher imports is expected as the global edible oil price is relatively low. It is anticipated that the total vegetable oil production will reach 234.5 million tonnes in 2019. Global palm oil production is projected at 72 million tonnes with Malaysia and Indonesia as leading producers. India looks set to retain its position as the largest consumer and importer of palm oil. China will likely increase their palm oil imports in 2019 due to the current attractive price and USA-China trade war. Overall consumption for oils and fats in 2019 is forecast at 233.9 million tonnes while palm oil consumption will reach 67 million tonnes.  

 

Table 1: MPOC’s 2019F Global Edible Oil Supply & Demand Scenario

('000 T)

2014

2015

2016

2017

2018E

2019F

Opening Stock

29,139

30,782

32,826

28,157

30,851

33,061

Production

202,023

206,775

206,570

221,975

230,037

234,500

Import

77,417

83,118

80,560

87,161

87,644

91,000

Export

77,487

84,086

80,273

87,260

88,136

92,000

Consumption

200,310

203,763

211,526

219,182

227,335

233,900

Ending Stock

30,782

32,826

28,157

30,851

33,061

32,661

Stock Usage Ratio

15.37%

16.11%

13.31%

14.08%

14.54%

13.96%

Conclusion

After taking into consideration the bearish and bullish factors affecting CPO price, the experts are of the view that CPO price has bottom out in the last Quarter of 2018. It is anticipated that the highest and lowest CPO price for the benchmark 3rd month price traded in the Bursa Malaysia Derivative Exchange will move up from the 4th quarter of 2018 to 1st quarter of 2019. Thereafter it will decline slightly.

Factors that support higher 1st quarter CPO price are the implementation of B10 mandate by the Malaysian government on 1 February, 2019, seasonal decline in oil palm production in both Indonesia and Malaysia during the period, reduction of Indonesia’s palm oil export levy to zero in December 2019 , extension of Indonesia’s B20 biodiesel mandate to the non-PSO sector on 1st September 2019, appreciating USD against Malaysian ringgit and Indonesian rupiah as well as higher palm oil imports of India and China.  

Entering the 2nd quarter of 2019, the experts are of the view that CPO price will decline slightly. Rising soybean production from Argentina and US and higher carryover stocks in the US due to China-US trade war is another factor suppressing CPO price increase. Narrow spread between palm and gas oil prices is another bearish factor which is expected to limit CPO price increase.  The bearish CPO price environment after 1st quarter 2019 will also be supported by higher production of Malaysian and Indonesian palm oil for the months after 1st quarter 2019.

There is also consensus among the experts that palm oil price may move up higher than expected. This is because palm oil production for 2019 may be lower than current estimates as there is a possibility of the occurrence of strong El Nino in the 1st half of 2019.  

(Details of presentation and discussion can be viewed in the POINTERS website: www.pointers.org.my. For further query you may contact the author Lim Teck Chaii at lim@mpoc.org.my

 

Source: http://mpoc.org.my/2019_CPO_Price_Trend_–_Views_from_Industry_Experts.aspx