CPO prices could fall to RM2250 per tonne by year-end

James Fry warns of fall in palm oil prices.

BANGI: Crude palm oil (CPO) prices are likely to fall to about RM2,250 per tonne by year-end just as production has begun to recover after the El Nino phenomena. 

LMC International Ltd Chairman Dr James Fry said the La Nina phenomena was also short-lived, hence speculation was now rife that there would be another round of the El Nino.

“There is also good production of rapeseed oil, soybean oil and sunflower oil, mainly from Argentina and Brazil, which means there will be increased supply of vegetable oils including palm oil, which will result in higher CPO stocks,” he told Bernama.

He earlier presented his outlook on the supply, demand and prices for vegetable oils at the Malaysian Palm Oil Boards Advisory Committee Seminar 2017.

Fry said Malaysia’s CPO output growth would reach 22.5 million tonnes this year, an increase of more than five million tonnes, compared with last year’s output of 17.3 million tonnes.

“But the growth in January-February this year was more rapid when compared to levels recorded way back in 1999 when output nearly touched 22 million tonnes.

“Our forecast puts 2017’s CPO output at 19.6 million tonnes, with a slowdown expected in the second quarter, but it will still be 2.2 million tonnes ahead of 2016’s production,” he said. 

Fry noted that the recent issues raised in Europe on palm oil’s sustainability, would also contribute to the weakening demand for the commodity.

The European Parliament adopted a resolution that only environmentally sustainable palm oil can be imported into the European Union after 2020.

However, he said this might be offset by the lowering of biodiesel subsidy by Indonesia for its biodiesel mandate programme, which may arrest the rise in CPO stocks. 

“Indonesia has a mechanism whereby the Indonesia CPO Fund uses the income from export levy of US$50 per tonne on CPO and US$30 on palm olefin, to subsidies the local biodiesel consumption in diesel blends. 

“When CPO costs much more than diesel, the mandate has to be kept small, as the CPO Fund would not be able to subsidies a large amount,” said Fry, adding that the Indonesia CPO Fund would pump in some US$750 million in biodiesel subsidies this year.

Fry said the Indonesian mechanism may not be enough to absorb the upward pressure in CPO stocks, but it would help moderate the rise, suggesting that Malaysia could adopt a similar mechanism. - BERNAMA