1 month ago
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PETALING JAYA: Crude palm oil (CPO) prices’ rising to a year-to-date high of RM3,185 a tonne on Oct 27 should augur well for the commodity next year, according to CGS CIMB Research.
The rise in CPO prices was driven by concerns of lower-than-expected palm oil supply from Malaysia with the new Covid-19-linked restrictions in Sabah, potential adverse impact on soybean supplies due to the La Nina weather phenomenon, as well as strong palm oil exports in the first 25 days of October.
It noted that the recent increase in CPO prices was beyond its expectation, and should prices stay around RM3,000 a tonne for the rest of the year, the 2020 average CPO price could reach RM2,600 to RM2,650, higher than its current projection of RM2,500 a tonne, which will be positive for plantation earnings as the jump in CPO prices will more than offset the decline in output.
Looking into next year, the research house said the ongoing La Nina could disrupt the supply of soybean and other oilseeds in 2021, leading to buyers switching to palm oil, which would be favourable for CPO prices.
“For 2021, we are more positive on CPO prices in the first half compared with 2H’21, as low carryover stocks and concerns over the La Nina impact on global oilseeds and palm oil crops could lead to higher prices that may be needed to ration demand,” it said.
However, lower biodiesel usage from Indonesia in 2021 due to insufficient funding from the Indonesia government, the reinstatement of the Malaysian export levy in 2021, and weaker demand from China once it has completed its restocking activities or stronger-than-expected palm oil supply are key concerns that could spoil the current price
rally party.
Meanwhile, CGS-CIMB expects demand for palm oil to remain favourable, due to expectations of a rebound in global GDP and normalising of edible oils demand post Covid-19 outbreak; and the current low edible oil stocks at most key producing and consuming countries.
“On an overall basis, we project demand for palm oil to decline by 2 million tonnes in 2020, before growing by 3 million tonnes in 2021,” it said.
English (United States)