Biodiesel demand to fuel CPO price recovery
Posted on 16 August 2013 - 05:37am
PETALING JAYA (Aug 16, 2013): Crude palm oil (CPO) prices, which have fallen by 24% over the past year, may recover in the last quarter of this year on expectation that rising production and stockpile in the country will be mitigated by increased demand for biodiesel.
Analysts pointed to a jump in domestic consumption, which hit 289,900 tonnes last month after the government start the mandatory use of biodiesel in Johor. Exports of fuel blended with CPO also shot up 71% to a record 33,300 tonnes in July.
"We believe the mandatory 5% biodiesel rollout in Johor in July has a lot to do with the rise in local palm oil consumption," RHB Research Institute plantation analyst Alvin Tai said in a report yesterday.
"We think the next rollout for northern states of Peninsular Malaysia could be brought forward from the October target,'' he added.
Tai said sustained high usage of biodiesel will cap palm oil inventory from rising too much as the industry enters into its peak production period.
"We see possible price strength in fourth quarter if Indonesia's production continues to disappoint and biodiesel demand remains strong,'' he said.
RHB Research's price assumption for CPO this year is RM2,400 a tonne.
The benchmark three-month CPO futures contract on Bursa Derivatives has risen 6% in August from the lowest level in three years at below RM2,200 a tonne seen in late July, to RM2,313 as at midday yesterday.
CPO production in July surged 18.2% to 1.67 million tonnes in July from June, while exports remained sluggish at 1.42 million tonnes.
Palm oil stockpile in July grew 1% to 1.66 million tonnes to halt a six-month streak of straight declines.
While the switch to biodiesel is definitely positive for CPO, HwangDBS Vickers Research believes that the export volume "is too small'' to a make a dent on rising inventory.
"While we do not forecast biodiesel exports, we suspect demand should continue to remain strong before the onset of winter,'' it said.
The research firm expects CPO prices to remain weak for the remainder of the year, as it believes current low prices reflect the market sentiment that inventory will recover during this peak production period.
MIDF Research is also predicting CPO to remain in "consolidation" phase over the next three months, as it sees supply to continue to exceed demand.
The research firm, however, said exports may rebound in the coming months as overseas buyers take advantage of the weaker ringgit, which had fallen 9% against the US dollar since May, to increase their own stockpile.
"We believe this factor will provide support to the price recovery,'' MIDF Research said, maintaining its CPO price assumption at RM2,500 a tonne for this year.
Publish date: 16/08/13