Published on 29 April 2015
The price of crude palm oil (CPO) came in at
the lower end of RAM’s price forecast of RM2,200/MT-RM2,400/MT for 1Q
2015, averaging RM2,204/MT. Notwithstanding the effects of a weak
ringgit, the commodity’s price is expected to remain soft, as concerns
over lacklustre demand amid competition from an ample supply of
substitute oils and a weak crude oil-price environment weigh on prices.
The still-narrow premium of soy oil to CPO (1Q 2015: c.USD90/MT, 2014:
c.USD88/MT) could also reduce the appeal of CPO, dampening growth in
demand for the commodity as consumers switch to competing oils.
A pick-up in CPO production, as yields recover after
disruptions caused by floods and the effects of dry-weather that had
depressed CPO production in January and February 2015, may lead to a
build-up in Malaysia’s palm oil inventory to over 2 million MT in the
near term, further pressuring prices. As at end-March 2015, palm oil
stocks in Malaysia stood at 1.87 million MT, a respective 10.5% and 5.2%
higher y-o-y and m-o-m.
Nevertheless, we note the potential price catalyst
from the successful implementation of Indonesia’s mandate to increase
the biofuel content in diesel from 10% to 15%. The B15 mandate is
estimated to boost CPO demand by 2 million MT in 2015. Although a higher
biodiesel subsidy of Rp4,000/litre and plans to impose levies on the
republic’s palm oil exports to fund the B15 programme would be positive
to its execution, we remain cautious of the pace of implementation,
given that it is still in the preliminary stages and in view of concerns
of engine incompatibility with high biodiesel content. Further, the
execution of previously initiated mandates had been marred by pricing,
infrastructure and logistical challenges.
Please click here to download RAM’s quarterly CPO price outlook.
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