Crude palm oil (CPO) futures extended their downtrend to trade below RM3,800 per tonne yesterday as prices succumbed to profit-taking on speculations of an improved La Nina weather pattern and better soybean harvests, according to market players.
The three-month benchmark May contract closed RM24 lower at RM3,721 per tonne.
The La Nina has caused heavy rainfalls in South-East Asia and Australia but brings drought to South America. It had disrupted the harvesting of oil palm fruits in Malaysia and Indonesia.
It has also threatened soybean planting in South America.
Despite CPO trending downwards for the past three days, industry consultant M.R. Chandran expects prices to stay strong at RM3,500 to RM3,800 per tonne until April given the current low inventories and production in Indonesia and Malaysia.
“My estimate for the average CPO price this year is RM3,300 per tonne,” he told StarBiz yesterday.
CPO prices could even spike up to reach RM4,000 per tonne should the poor weather conditions continue to contribute to lower fresh fruit bunches and poor yield, added Chandran.
However, the RM4,000 price level might be shortlived as CPO production by major producers is expected to improve by the second half of 2011.
As for oil palm plantation companies, he said: “Many can still reap over 100% profit margin even though the CPO price dropped to RM3,500 per tonne with the cost of production of about RM1,400 per tonne.”
Chandran also said the premium Rountable on Sustainable Palm Oil (RSPO)-certified palm oil, which is sold US$9 to US$10 per tonne higher than the uncertified CPO, was fast gaining acceptance worldwide compared with the genetically-modified soybean oil.
He said Malaysia contributed about 70% of the total of 3.61 million tonnes RSPO-certified palm oil production with the remaining coming from Indonesia and the rest of the world.
Credit Suisse in its latest report said CPO prices could spike to RM4,000 per tonne with weather vagaries but “we strongly believe that this price is unsustainable for a long period as it will lead to a slowdown in demand.”
The brokerage also thinks that the palm oil rally is closer to its end and may have already peaked due to speculative positions for soy, corn and palm oil at record highs, hence vulnerable to profit-taking.
Supply may be on the upside in 2011 with reversal of tree stress in Malaysia, higher new planting in 2007 and rising output from higher rainfall, resulting in depressed palm oil prices.
However, Credit Suisse noted that huge price volatility was expected this year. “The global oilseed and edible oil inventories are at multi-year lows and there is little room for error.”
Despite its “underweight” call on plantations, the brokerage had raised its 2011 palm oil forecast to RM2,950 a tonne from RM2,300 previously.
In another development, tin on the Kuala Lumpur Tin Market (KLTM) hit another new high yesterday to close at US$32,500 per tonne.
However, the commodity could be trending lower today in line with the three-month tin delivery on the London Metal Exchange which fell 5.2% to US$30,801 tonnes at 9.30am London time yesterday, analysts said.
Meanwhile tyre-grade SMR 20 and latex-in-bulk yesterday settled higher at RM17.30 and at RM10.77 per kg respectively.