CPO price seen higher next year

by **Cals** Sun 29 Dec 2013, 23:41

Published: Saturday December 28, 2013 MYT 12:00:00 AM
Updated: Saturday December 28, 2013 MYT 12:36:41 PM
CPO price seen higher next year
BY LIZ LEE

THE local plantation sector experienced a rather subdued year in 2013 on concerns over high end-December 2012 palm oil stocks, sluggish exports which could not match the higher than expected production and tepid performance of crude palm oil (CPO) prices averaging about RM2,400 per tonne versus RM2,764 per tonne in 2012 .
As 2013 draws to a close, what lies ahead for the sector in 2014?
Most top plantation players are generally optimistic that the CPO price is poised to perform better next year. Felda Global Ventures Holdings Bhd (FGV) group president and chief executive officer Mohd Emir Mavani Abdullah says CPO prices should hover between RM2,500 and RM2,700 per tonne in the first quarter of next year.

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Lee : ‘I believe that this upward price movement is sustainable and will continue into 2014.’

“The general sentiment across the industry is similar,” he says in a email reply, noting that top commodity trader, Dorab Mistry of Godrej International Ltd is also bullish on CPO prices for next year.
“Mistry recently put forward that one of the fundamentals to watch out would be the implementation of Indonesia’s B10 biodiesel programme, which quite literally signifies that there will be an increase in the republic’s CPO consumption as a result of biodiesel production leading to a lower supply of CPO in the world market, consequently resulting in the price of the commodity going up.”
Other factors Emir takes into account are the consumption of palm oil for food and non-food purposes contributing to the better CPO price outlook.
IOI Corporation Bhd group executive director Datuk Lee Yeow Chor concurs with the forward-looking upward trend for CPO prices.
He notes prices have been muted by the moderate increase in Malaysia’s CPO production in 2013, led by the higher than expected national production during the second half of the year.
“In spite of this moderate increase, CPO price has moved up steadily from a low of RM2,265 in September to the present level of around RM2,550 a tonne. I believe that this upward price movement is sustainable and will continue into 2014.”
In terms of production, Lee, who is also Malaysian Palm Oil Council chairman, believes that there would not be any significant variation in CPO production during 2014 compared with 2013 as there was no severe weather and rainfall pattern change during the past 12 months.
Alliance Research plantation analyst Arhnue Tan says in a note that CPO prices are expected to stay fairly buoyant going into the first quarter of 2014.
“We go into 2014 with a ‘neutral’ stance on the sector despite expecting CPO prices to average roughly RM200 per tonnehigher than 2013 at RM2,600 per tonne.”
On the downside, Tan warns that CPO prices could trend lower than expected if there is a bumper crop harvest in Malaysia and Indonesia, a hiccup in biofuel mandates implementation, or regulatory changes which do not favour palm oil consumption.
Game changer
With the Government’s push for the implementation of the palm oil-based biodiesel programmes, it would help reduce the inventory which in turn helps stabilise CPO prices.
While the B5 biodiesel programme nationwide implementation in slated by July 2014, it has been reported that the Government is also seriously considering the introduction of the B7 and B10 biodiesel blends.
The B5 biodiesel is a blend of 5% palm oil or palm methyl ester with diesel fuel.
The implementation of B5 biodiesel nationwide is estimated to take off about 500,000 tonnes of CPO from the local inventory and the resultant increase in demand is expected to increase CPO prices by RM500 per tonne.
The Performance Management & Delivery Unit palm oil and rubber NKEA director and ETP investment director Ku Kok Peng believes that the introduction of B5 nationwide should be viewed as an expansion of the palm oil sector value chain, rather than a tool to stabilise CPO prices, “as the Government views the implementation of B5 as a critical component in introducing a greater mix of energy sources for the nation”.
Emir meanwhile notes that the B5 biodiesel programme combined with the total biodiesel produced inclusive of exports has contributed to a 44% increase in palm biodiesel production, from 173,220 tonnes in 2011 to 249,213 tonnes in 2012. “We view this positively as it helps stabilise the price of CPO through increased biodiesel demand.”
Labour woes
Meanwhile, labour shortage remains the number one challenge faced by the planters today, says Lee of IOI Corp.
He lauds the Government’s aim to increase the country’s average CPO yield under itsEconomic Transformation Programme, an agronomically possible goal.
“However, if there is not enough workers to perform basic tasks like cutting the fruit bunches, picking up the loose fruits after the bunches have dropped on the ground, and loading the heavy bunches onto the tractors, all the planning and effort in breeding and agronomic advancement will come to nought in achieving the goal,” he notes.
While he relates to the Government’s concern about the social and security risks posed by a large migrant workers population, “I would argue that migrant workers in plantations should be treated differently as they work and live in plantations which are away from the towns and with their own basic recreational, medical and community facilities.”
Ku agrees that the sector’s over-dependency on foreign labour has long been its Achilles heel. “Labour cost makes up approximately 30% of the production cost in the upstream sector, and this constitutes a significant outflow of income from the country, as 80% of the workers employed in the plantation sectors are foreign labourers,” he says.