CPO Price Trend for 2018

MPOC POINTERS, JANUARY 29 TO FEBRUARY 4, 2108
2018 GLOBAL PALM OIL MARKET TRENDS AND OPPORTUNITIES

Malaysian Palm Oil Council (MPOC) organised the first Palm Oil Internet Seminar (POINTERS) for this year, from January 29 till February 4, 2018. A panel of experts were engaged to present papers and forecast 2018 CPO price.

Three factors have been recorded as major factors that will set the Crude Palm Oil price trend for the year:

  • India and China’s palm oil demand situation;
  • Palm oil supply situations in Malaysia and Indonesia; and
  • Soybean production in USA, Brazil and Argentina.

The most significant issue affecting India is the hike in edible oil import tax. On November 17, 2017, India raised the import duty on crude palm oil from 15% to 30%. Duty on refined palm oil was increased from 25% to 40%.

China’s high palm oil stock which was at 718,000 MT on January 29, 2018, and the anticipated raise in soybean crushing to support higher feed production will limit the prospects for higher palm oil import this year. The rainy season in Malaysia and Indonesia, provided that it does not turn into a strong La Nina, will favour higher palm oil production.

Views from the experts

Experts are slightly bullish about the 1st Quarter of 2018. The average price is forecast to settle at a range between RM2,600 and RM2,700 per MT for the benchmark CPO spot price traded in the Bursa Malaysia Derivative Exchange (Refer to Table 1). This price range is higher than the price traded on January 30, 2018, at RM2,490 per MT.

Low palm oil production in the beginning of the year, which is a normal trend in Malaysia, and the suspension of Malaysia’s CPO export tax for three months will support a higher CPO price. Going by the normal trend of production in Malaysia, production is expected to be low in the first quarter of the year and will only recover in the months after this period. Also observed is the trend of rising Brent crude oil price, which supports a higher CPO price.

Table 1: Forecast of the Average Benchmark CPO Spot Price Traded in the Bursa Malaysia Derivative Exchange for the 1st Quarter of 2018

Paper by Institution RM per MT
Dr. Sathia Varqa Palm Oil Analytics,  Singapore RM2,600 – RM2,700
Oscar Tjakra Rabobank, Singapore RM2,600

Source: www.pointers.org.my

For the balance of the three quarters of 2018, after taking into consideration India’s duty hike and the rising palm oil supplies situation of Malaysia and Indonesia, the CPO price is anticipated to trend lower.

For the full year of 2018, the average benchmark CPO spot price traded in the Bursa Malaysia Derivative Exchange is anticipated to be lower, settling between a range of RM2,500 to RM2,659 per MT (Refer to Table 2).  This forecast is supported by the anticipation of higher palm oil production in Malaysia and Indonesia, as well as the effect of India’s steep increase in the import duty of edible oil, which would also make India’s palm oil imports costlier.

Table 2: Forecast of the Average Benchmark of 2018 CPO Spot Price Traded in the Bursa Malaysia Derivative Exchange

Paper by Institution RM per MT
Mr. Oscar Tjakra Rabobank, Singapore 2,500
Marketing and Market Development Division (MMD) Malaysian Palm Oil Council (MPOC) 2,659

Source: www.pointers.org.my

Mr. Lin Ah Hong anticipated that Malaysia and Indonesia will experience weak La Lina condition for the first half of 2018. This condition will favour high palm oil production. He forecasts that Malaysia’s CPO production will rise by 6.6% to 21.0 million MT, while Indonesia’s production will grow by 7.5% to 37.2 million MT. MPOB forecasts that Malaysia’s production will increase by 580,000 MT to 20.5 million MT. Meanwhile, Mr. Fadhil Hassan projected that Indonesia’s palm oil production will rise by approximately 2 million MT to 38.5 million MT.

Mr. Govindbhai G. Patel expects India’s palm oil import to increase by only 10,000 MT to 9.21 million MT in 2018. The duty hike will curb the growth in India’s palm oil import. Based on his analysis, India will import more CPO as the import duty is lower compared to the duty imposed on refined palm oil.

Mr. Govindbhai forecasts that in 2018, India’s CPO  import will rise by 1.18 million MT to 7.51 million MT, while imports of refined palm oil will drop by 1.17 million MT to 1.7 million MT.  He argued that local oils and fats production will never be enough to meet domestic requirement. As such, the country will continue to import palm oil in huge quantities due to palm oil’s competitive pricing and functionality, despite the steep increase in import duty.

Meanwhile, Mr. Cai in his paper concluded that there is little impetus for China to import higher volume of palm oil in 2018. Palm oil import will register about 5 million MT, close to the 2017 import level. Prospects for high palm oil uptake for 2018 do not look bright. China’s high palm oil stock at 718,000 MT on January 29, 2018, and the anticipated raising soybean crushing to support higher feed production are expected to limit the prospect for high palm oil import.

In the soybean sector, USA, Brazil and Argentina’s production is forecast to rise slightly by 2.2% or 815,000 MT to 37.5 million MT. This is based on the forecast that the crops in USA and Brazil will be normal. Production in Argentina will drop slightly as dry conditions dominate some soybean production areas.

MPOC summarised the global oils and fats supply outlook for 2018. (refer to Table 3). Based on this analysis, MPOC’s total global vegetable oil production is forecast to reach 225 million MT, contributed mainly by palm oil as the industry recovers from the shortfall of palm oil production after the lag effects of the 2015 El Nino.

Growth in mature tree areas and higher yields (supported by a favourable start to the rainy season) are primary factors in the expected production gains. Consumption is forecast to grow by 4.3 million MT to 222.5 million MT. Exports are forecast to grow by 977,000 MT to 88.4 million MT.( See Table 3 for MPOC’s Global Oils and Fats Supply and Demand 2018 forecast).

Table 3
Global Oils and Fats Supply And Demand
2013 – 2018F

Source: www.pointers.org.my

Conclusion

Having looked at these issues, experts are of the opinion that the CPO price will be slightly bullish for the 1st Quarter of 2018. The average price is forecast to settle at a range of between RM2,600 and RM2,700 per MT for the benchmark CPO spot price traded in the Bursa Malaysia Derivative Exchange. This price range is higher than the price traded on January 30, 2018, which was at RM2,490 per MT.

For the balance of the three quarters of 2018, after taking into consideration India’s duty hike issue, and the rising palm oil supply situations in Malaysia and Indonesia, CPO price is anticipated to trend slightly lower. For the full year of 2018, the average benchmark CPO spot price traded in the Bursa Malaysia Derivative Exchange is anticipated to be lower, settle between the range of RM2,500 to RM2,659 .

(Details of presentation and discussion can be viewed in the POINTERS website : www.pointers.org.my)