Analysts see weaker CPO prices in 2H

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KUALA LUMPUR: Crude palm oil (CPO) prices may fall back to RM1,500 by October due to higher production in the second half of the year (2H), said Godrej Industries Ltd director Dorab Mistry.

Speaking at a palm and lauric oils conference here yesterday, Mistry said over the short term, CPO prices would trade at around RM2,000 per tonne in the next few weeks and might even reach RM2,100.

"The high cycle in palm oil lasted much longer than I had anticipated," he said. "I am told that the newer younger palms are less prone to this biological cycle and need only a brief few months of rest and recuperation.

"I am estimating that from August onwards, we shall see a very good uptick in CPO production," he said. "My prognosis is that Bursa Malaysia Derivatives (BMD) futures will only get to RM2,100 at best."

Mistry said beyond April and May, palm would become uncompetitive against South American soya oil and would lose market share.

Nevertheless, ISTA Mielke GmbH–Oil World Publications’ executive director Thomas Mielke expected a considerable slowdown in Malaysian production this year.

"After the record yields of an average 4.55 tonnes per hectare achieved in 2008, we expect some slowing down to 4.4 tonnes per hectare," he said.

Mielke attributed the lower production to the biological yield cycle (after last season’s very high production) and partly to the lagged effects of reduced fertiliser application.

"We expect palm oil production in Malaysia to increase only slightly by 0.2 to 0.3 million tonnes (to 17.9 or 18 million tonnes) in 2009, following a significant growth of 1.9 million tonnes in 2008," he said.

Mielke said prices of CPO in Rotterdam should appreciate by US$70 to US$100 (RM259 to RM370) until June and average US$640 in the first half of this year.

Meanwhile, LMC International Ltd’s chairman James Fry said: "I am more bearish in view of the gravity of the recession. I fear energy prices will fall further. If so, CPO will be back at RM1,500."

Nevertheless, he said by the second half of 2009, lower fertiliser prices and lower US dollar labour costs arising from the weak exchange rates should allow efficient plantations to earn decent margins, even with the lower prices.