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Palm oil price will remain strong [30-07-2012]  
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Local plantation players say crude palm oil (CPO) is still fundamentally strong with the average price this year expected in the range of RM2,800 to RM3,000 per tonne.

Many disagree with international palm oil expert Dorab Mistry, who recently forecast that CPO might decline to RM2,700 per tonne by year-end due to poor offtakes, and even slump to RM2,200 per tonne if there was a repeat of the 2008 financial crisis.

United Malacca Bhd chief executive officer Dr Leong Tat Thim is positive that the average CPO price can reach RM3,000 per tonne this year.

The average MPOB price for the six months of this year was already at RM3,207 per tonne.

“Assuming for the next six months, the average is RM2,800 per tonne, then the average this year will be about RM3,004 per tonne,” he told StarBiz recently.

He said Mistry's forecast that CPO prices could trade as low as RM2,200 per tonne was based on weakening demand mainly due to the financial crisis in Europe and the United States.

“However, the impact on the CPO demand is not significant as the bulk of Malaysia's CPO is exported to price-sensitive countries like India and China that have a large growing population,” Leong explained.

Furthermore, CPO is currently traded at a price discount of US$220 per tonne to soybean oil.

“This gap is expected to widen further as the price of soybean oil is expected to increase due to the adverse weather condition in the United States affecting the production of soybean there,” he said.

Hence, if the discount gap gets wider, the demand for CPO will increase in the coming months.

Leong pointed out that price-sensitive major markets like China and India would be keen to take up palm oil as a cheaper alternative to soybean oil.

Industry consultant MR Chandran also disagrees with Mistry's weak CPO price prediction.

He pegged the average CPO price at RM2,800 per tonne this year. “Mistry's forecast is based on the world heading for a recession which can lead to major social upheavals with demand destruction in many industries including food, which in turn would affect palm oil, one of the key ingredients in many food-based goods,'' Chandran pointed out.

However, he personally believes that the United States, for example, will not let its economy slide further this year and will likely impose monetary stimulus to spur economic growth, especially during its election year.

Chandran, on the other hand, concurred with Mistry on the declining growth in the global CPO production.

He projected the global CPO production would only increase marginally by 1.3 million tonnes to 51.3 million tonnes versus last year's production of 50.1 million tonnes.

“Interestingly, the slight growth in production will not be able to match the average global CPO demand which has been increasing by two to three million tonnes for the past three years,” Chandran said.

This was an important factor that would support prices going forward, he added. Given the climatic changes, Chandran expects Malaysia's CPO production will not be able to meet the targeted 19 million tonnes this year, but instead will reach 18.7 million tonnes.

Indonesia, the world's largest CPO producer, meanwhile is expected to produce about 25 million tonnes this year.

Malaysian Estate Owner Association president Boon Weng Siew, meanwhile, said Mistry was being pessimistic by just looking on the demand side.

“The CPO export figure now may be a bit down because China and India have already been stocking up CPO in the past months.

“I believe these major buyers will return in September to do stockpiling again for the upcoming festivals like Deepavali, Christmas and New Year,” he added.

Last Friday, the three-month benchmark CPO September contract closed RM45 higher at RM2,927 per tonne.

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