Crude palm oil (CPO) prices may rise 25 per cent by December 2009 on continued surge in demand from biofuel sector against lower output estimates in Malaysia, the world’s second largest producer after Indonesia.
According to the latest forecast by the Standard Chartered Bank (SCB), world’s largest consumable edible oil may hit 2,500 ringgit a tonne in the fourth quarter of the current calendar year despite weak energy prices and surplus of substitute stocks (mainly rapeseed and sunflower oil). Palm oil for April delivery traded at 2,024 ringgit ($560) a tonne on the Malaysian Derivatives Exchange on Monday.
CPO has rallied 45 per cent since the beginning of the year, but recouping only a fraction of the gains lost since reaching historic highs of 4,400 ringgit a tonne in 2008. While this is part of a rebound in agricultural commodities since January, there are some commodity specific factors supporting CPO.
In 2008, the CPO market passed through all the three critical stages: bullish, benign and bearish. In the end, high stock levels, yield, output and good weather marked the bearish stage. Supply growth outpace demand growth especially in the second half with conditions exacerbated by the global economic and financial slowdown.
Although economic conditions remain sluggish, there has been some consolidation in sentiment with demand rebinding gradually which suggests that the commodity is entering a bullish phase with deterioration in stocks, output and yield.
Meanwhile, Malaysia’s palm oil sector reveals some interesting trends which go some way towards explaining price swings in the market in 2008. Malaysia and Indonesia account for around 90 per cent of the global output.
Industry data by Malaysian Palm Oil Board (MPOB) reveal that the country’s CPO market may be turning a corner. Output of the country declined for the second month in a row as did closing stocks. At 1.329 million tonnes (MT), output in January 2009 is at its lowest since April 2008 while ending stocks are at their lowest since March 2008. The last time the market saw closing stocks and output at these levels, prices were around the 3500-ringgit-a-tonne level, 75 per cent higher than the current level.
