Plantation sector
Maintain neutral: A majority of commodity prices, particularly gold (-4.6%), crude oil (-40.3%), soybean oil (-17%), iron ore (-35.3%), coal (-16.8%) and steel bar (-28.4%) have shrunk drastically over the last  year. Crude palm oil (CPO) prices, dragged down by softer prices in both crude oil and soyoil, have dipped more than 7% to the current level of RM2,240 per tonne. In fact, CPO prices have been in the doldrums since September 2012, hovering below the 10-year average CPO price of RM2,400 per tonne, which is quite unexpected.

Indonesian and Malaysian CPO exports have also not been doing well since last year. For this year, poor export data for Malaysia is mainly because of weaker demand from China (-32.4%), the European Union (-20.5%), Pakistan (-22.9%) and the United States (-8.9%). Apart from softer demand due to the slowdown in China’s economy, CPO has been facing stiff competition from soyoil, CPO’s closest substitute, which had an unprecedented production high since last year. The softer soyoil prices arising from the oversupply situation has caused a switch of demand from CPO to soyoil.

Despite numerous efforts launched by the Indonesian government recently such as increasing the biodiesel blending rate and raising biodiesel subsidies to promote domestic consumption of palm oil, CPO prices have failed to rise. The market is seemingly not overly optimistic about Indonesia’s implementations probably because of many disappointments over the years. — PublicInvest Research, June 3

CPO prices in the doldrums PublicInvest Research Plantation sector Maintain neutral: A majority of commodity prices, particularly gold (-4.6%), crude oil (-40.3%), soybean oil (-17%), iron ore (-35.3%), coal (-16.8%) and steel bar (-28.4%) have shrunk drastically over the last year. Crude palm oil (CPO) prices, dragged down by softer prices in both crude oil and soyoil, have dipped more than 7% to the current level of RM2,240 per tonne. In fact, CPO prices have been in the doldrums since September 2012, hovering below the 10-year average CPO price of RM2,400 per tonne, which is quite unexpected. Indonesian and Malaysian CPO exports have also not been doing well since last year. For this year, poor export data for Malaysia is mainly because of weaker demand from China (-32.4%), the European Union (-20.5%), Pakistan (-22.9%) and the United States (-8.9%). Apart from softer demand due to the slowdown in China’s economy, CPO has been facing stiff competition from soyoil, CPO’s closest substitute, which had an unprecedented production high since last year. The softer soyoil prices arising from the oversupply situation has caused a switch of demand from CPO to soyoil. Despite numerous efforts launched by the Indonesian government recently such as increasing the biodiesel blending rate and raising biodiesel subsidies to promote domestic consumption of palm oil, CPO prices have failed to rise. The market is seemingly not overly optimistic about Indonesia’s implementations probably because of many disappointments over the years. — PublicInvest Research, June 3

This article first appeared in The Edge Financial Daily, on June 4, 2015.