CPO price to stay high amid supply tightness, firm demand
By Azanis Shahila Aman - April 13, 2021 @ 10:14am
KUALA LUMPUR: Malaysia's crude palm oil (CPO) stockpile has risen to a four-month high in March but the commodity's price should still remain high at least until June.
MIDF Research said CPO price would stay at RM3,000 level in the first half of 2021 due to anticipated supply tightness as well as the attractiveness of CPO price compared to other edible oils (i.e. soybean oil).
However, the firm expects CPO price to ease in the second half of 2021 due to better production level as a result of rainfall which should boost palm oil fruit yields.
"We view that the existing landscape will lead to a strong increase in CPO price. We are anticipating tight soybean supply, especially from Argentina, to lead to stronger soybean prices which in turn, should drive CPO selling price higher.
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"On top of that, the subdued inventory level of palm oil in Malaysia would also act as a catalyst to CPO price," it said.
Malaysia's March 2021 palm oil inventory increased 10.7 per cent month-on-month (mom) to 1.45 million tonnes, its highest since November 2020.
The inventory level came higher than Reuters expectations with a variance of 9.5 per cent mom, MIDF Research said.
"In the intermediate term, we expect inventory level to stay below the two million level in view of the slower production period, but further down, we expect stockpiles to show further improvement on the back of production recovery amid higher production cycle," it said.
The firm believes the palm oil supply tightness will likely remain until the second quarter (Q2) of 2021 given the weaker output during the post-peak production.
"Nonetheless, we expect the production to recover in the second half, though below potential, given Malaysia's high reliance on foreign workers," it said.
On export demand, MIDF Research said it would recover on the back of gradual recovery of economic activities in India and China, and higher export demand from China as red palm oil was allowed to enter China following the approval of new standards for premium palm oil.
It said in the CPO futures market, prices had rallied to its highest in over 10 years to above RM4,000 per tonne, amid strong market sentiment and the rally in the soybean oil market.
"Moving forward, we anticipate the effects of the pandemic to subside in the second half given that Malaysia already rolled out its first batch of Covid-19 vaccines in February, and more relaxation of movement control order rules.
"All factor considered we maintain our positive stance on plantation sector with 2021 CPO price forecast of RM3,000 per tonne," it added.