KUALA LUMPUR (March 24): Palm oil analysts project crude palm oil (CPO) prices to contract this year, saying a recovery in supply combined with the performances of other vegetable oils will bear weight on the commodity.

Oil World editor and CEO Thomas Mielke expects prices to start declining in the second quarter of 2021, but said the decline will be moderate as long as stocks are low.

“I'm convinced that until 2022, probably mid- or end of 2022, until vegetable oil stocks, which are depleted at the moment, are being replenished to more comfortable levels.

“Therefore, we are close to the peak or reached the peak already,” Mielke said at the Bursa Malaysia Derivatives' Palm and Lauric Oils Price Outlook Conference held virtually.

Mielke expects the prices of RBD palm olein and crude palm kernel oil (CPKO) prices to reach US$950 and US$1,310 a tonne respectively.

In terms of production, he said global production for palm oil will rebound by 3.2 million tonnes for the October 2020-September 2021 growing season, with Indonesia’s output rising by 3.3 million tonnes and Malaysia’s declining by 500,000 tonnes.

As for consumption, global palm oil consumption is expected to see a slight recovery of less than one million tonnes during the growing season.

Another analyst, LMC International’s James Fry, said Malaysia’s 2021 CPO production is expected to come in below 19.5 million tonnes, with CPO futures trading at RM3,300 per tonne by the end-2021.

The EU’s CPO-Brent spread should drop from US$700 at the moment to around US$450 by 4Q21, based on 4Q21 Brent crude forecast of US$65 a barrel, Fry said.

“The recovery in South East Asian CPO output will lead to a slow rise in the Malaysian Palm Oil Board (MPOB) stocks,” he added.

For Godrej International Ltd director Dorab Mistry, third month CPO futures on Bursa Malaysia can be expected to hold on to the RM3,300 level until June.

He said the price curve post-April and May will be a downward curve with growing weather being key for all vegetable oils and their performances from a price perspective.

He added, however, that the contract has the potential to bottom out at RM2,700 from July onwards.

According to him,  in the short term supply and demand will be tight for palm oil, but there will be a gradual ramping up of the comoodity’s production.

Mistry is forecasting global palm oil supply to increase by three million tonnes in the 2020-21 Growing Season, from the 2.5 million tonne contraction in the 2019-20 season.

For 2021, Mistry trimmed his estimate for Malaysia's palm production to 19.6 million tonnes from 20 million tonnes earlier, while he has also cut Indonesia's estimated palm oil output to 48 million tonnes from 49 million tonnes.

"Normally, that would be bullish... but we are seeing some pretty horrific demand disruption in the market because of high prices.

“Palm is traditionally the oil for poorer consumers and hence demand for palm will be challenged by high prices,” Mistry said, adding that Indonesia and Malaysia are laggards when it comes to biodiesel implementation.

He added that compared with its historical prices, palm oil is expensive. It is only competitive against soft oils, and that is because soft oils are super expensive in his view.

Pakistan-based Westbury Group’s CEO, Rasheed Janmohammed, said palm oil futures on Bursa Malaysia Derivatives have already gone up too much, resulting in demand rationing.

He is forecasting CPO futures to trade between RM3,600 and RM3,800 a tonne in 2Q21, and between RM3,200 and RM3,400 from July onwards

Ryan Chen, business director for oil and softseeds at Cargill Investments (China) Ltd, said soft oil prices will help to support palm oil prices, but this would be dependent on the various performances of the other vegetable oil complexes.

Indonesian Palm Oil Association (Gapki) vice-chairman Togar Sitanggang forecasts CPO prices in 1H21 to be at US$1,000 to US$1,150 per tonne.

He expects Indonesian CPO production to be at 49 million tonnes in 2021, up 4.18% from 47.03 million tonnes in 2020.

He also expects Indonesian overall palm oil exports to increase 10.5% to 37.56 million tonnes from 34.01 million in 2020.

Togar said that based on current prices and export levies charged by the government, Indonesia has enough money for its biodiesel fund, but noted that any changes in the market situation would require fast responses from the republic’s government.

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