Weak export demand bring down CPO prices after continuous strong gains

Weak export demand bring down CPO prices after continuous strong gains
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KUALA LUMPUR (Jan 20): Crude palm oil (CPO) prices are trading below the sharply high levels seen earlier this month and late last year, due to concerns that demand will reduce as Malaysia’s exports of the edible oil dropped.

The CPO contract for April delivery on Bursa Malaysia Derivatives closed RM77 lower at RM3,272 per tonne today. This is RM460 or 12.32% below its one-year high of RM3,733 registered on Jan 6.

Additionally, the contract has declined by RM317 or 8.83% from the RM3,590 registered on Jan 4, the first day of trading in 2021.

Earlier this month, CPO futures breached the RM4,000 mark for the first time since 2008. Based on Bloomberg data, the previous all-time high for CPO futures was RM4,321 per tonne, recorded in March 2008.

The spot CPO price, according to data from the Malaysian Palm Oil Board, has also fallen by RM392 or 9.88% to RM3,594.50, from its recent high of RM3.986.50 on Jan 7.

In a note to clients today, CGS-CIMB Futures noted that palm oil futures posted their steepest weekly drop last week in nearly 11 months on concerns demand from key buyers would dissipate, as Malaysia had reported a slump in exports.

“Prices in Kuala Lumpur fell 11% this week, the most since the week ending Feb 28. Palm, used in everything from cookies to cosmetics and biofuel, plummeted 4.5% on Thursday and briefly climbed early Friday, before reversing gains to stretch losses to a fifth straight day.

“Futures initially bounced back, alongside the rebound in overnight Chicago soybean oil and ‘roaring’ crude oil futures, but succumbed to weak export demand which is denting sentiment, according to a head of trading and hedging strategies,” CGS-CIMB Futures reported.

Malaysia’s palm oil exports slumped 42% to 426,276 tonnes in the first half of January, compared to December, Bloomberg said on Friday, citing AmSpec Agri. This is a steeper decline from the 35% drop from the Jan 1 to Jan 10 period.

In its technical report today, RHB Retail Research’s Joseph Chai said the immediate support for the April contract has been revised to RM3,200, followed by RM3,168. In terms of immediate upside resistance, this has been set to RM3,400, followed by RM3,476.

“If a follow-through in the coming sessions occurs, and it breaches the upside resistance of RM3,476, we should see a change in trend. However, until that happens, we maintain a negative trading bias,” Chai said.

In a note on Dec 12, CGS-CIMB Research’s Ivy Ng and Nagulan Ravi said palm oil exports are projected to decline due to higher CPO prices and weaker supply. They had projected CPO prices to trade at RM3,200 to RM3,600 a tonne in January.

“Key factors influencing prices are the La Nina impact on oilseeds and palm oil supply, weather development in South America, government policies on export levy and taxes, as well as biodiesel mandates,” they said.

CPO prices had been advancing since May 2020, as lower production and exports ate into end-month stocks.

S Kanagaraju