RAM sees CPO trading lower at RM2,100-RM2,300 in 4Q

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KUALA LUMPUR (Nov 25): RAM Rating Services Bhd (RAM Ratings) has revised downward its crude palm oil (CPO) price forecast for the fourth quarter of this year (4Q14) to between RM2,100 and RM2,300 per tonne, from RM2,300-RM2,500 levels, as it expects production will continue to suppress CPO prices.

Following the revision, the rating agency has revised its 2014 CPO price forecast to between RM2,400 and RM2,500 per tonne from between RM2,500 and RM2,600 per tonne.

“The country’s CPO production had exceeded the Malaysia Palm Oil Board’s forecast for the nine months of this year (9M14) by 3.16%,” it said in a statement today.

“As 4Q14 is still a seasonally high production period, we do not expect the stockpile to ease substantially,” it said, adding that the CPO prices are unlikely to see any significant upside.

RAM Ratings noted that CPO price averaged US$772 (RM2,210) per tonne in 3Q14, which was 3.9% below its lower-end forecast.

“In August 2014, the daily CPO price plunged to a five-year trough, coming in below RM2,000 per tonne.

“The drastic and unexpected drop mirrored price action in respect of competing oil seeds such as soybean, which had seen a bumper harvest,” it said.

RAM Ratings added that the production of the competing oil seeds is anticipated to come in at around 530 million tonne for 9M14, up 4.5% from full-year 2013.

On the country’s palm oil stock, RAM Ratings noted that it had risen to above 2 million tonnes since August 2014 as the industry moved into its peak production cycle, which was unaffected by earlier anticipated El Nino weather conditions.
 
On the recent announcement by the government to increase the biodiesel content from 5% or B5 to 7% or B7, the rating agency said it could result in an additional 200,000 tonnes of CPO consumption per year.

“In Indonesia, the pace of the rollout of the 10% biodiesel mandate (B10) has been slower than expected.

“This is amplified by the recent sharp drop in crude-oil prices, which has raised concern over the economic viability of biodiesel as a substitute for mineral diesel, thus reducing price support for CPO,” it added.

The government announced that the biodiesel mandate will be implemented in Peninsular Malaysia this month, and subsequently followed by Sabah and Sarawak in December.