Tuesday, May 11, 2021

Quick View on Crude Palm Oil

Crude Palm Oil hitting RM4652 per tonne as at 6 May 2021 (MPOB website). Record high and good to visit plantation stocks again. By the way, CPO price usually goes together with Crude Oil price. Malaysia is second largest CPO producer (approx 19 million tonnes per year) after Indonesia (approx. 44 million tonnes per year). Sime Darby is the largest CPO producer in Malaysia.

 


 Below are information taken form The Edge:

https://www.theedgemarkets.com/article/malaysia-cpo-production-expected-top-20-million-tonnes-2020

  • Malaysia’s CPO production is expected to go above 20 million tonnes, while Indonesia should add one to two million tonnes to its 2019 production levels, as yield stress from 2019’s dryness is over.  
  • India’s total import of vegetable oils should come in at between 13 million to 13.5 million tonnes in 2020 (from the 15.5 million tonnes in 2019), and rise back to 15 million to 15.5 million tonnes in 2021.
  • Meanwhile, palm oil demand is still viable in Europe due to tight rapeseed oil supplies and palm oil gaining market share given its status as the cheapest vegetable oil. This is particularly the case in biodiesel, which makes up 50% of total European demand for palm oil.

 

What is palm oil mill?

Palm oil mills process fresh fruit bunches from oil palm trees. It is a strategy for plantation company to own palm oil mills to process the FFB immediately after harvesting. However, palm oil mills are additional cost and need to operate at optimum capacity. Refer to the process below.



Products from FFB are as follows:


 

Leading importers for CPO are India and China

https://www.theedgemarkets.com/article/indian-and-chinese-demand-palm-oil-likely-rise-2021

  • In 2019, India accounted for 19% of global palm oil imports, while China accounted for 13%. As of September 2020, China and India were also the two biggest importers of Malaysian palm oil. 

https://www.nst.com.my/business/2021/03/676703/china-import-71mil-tonnes-palm-oil-2021

  • KUALA LUMPUR: China is expected to import between 6.7 million tonnes and 7.1 mil tonnes of palm oil in 2021, owing to the tightness in the country's vegetable oil.

 

Quick fact: Forecast India import 13 mil tonnes and China import 6 mil tonnes from Malaysia. If these countries increase imports, Malaysia will not have enough to supply then Indonesia will supply the shortfall.

 

CPO price factors

Forecast of CPO price till 2025 is US$777 per tonne. See link below but I think this site is too optimistic.https://www.statista.com/statistics/675813/average-prices-palm-oil-worldwide/

Please note this is only forecast, nobody will know the actual price will be. There many factors determining the CPO price such as weather, soybean oil, biodiesel B30 mandate in Indonesia)

 

Weather Impact on Palm Oil production

El Nino – Hot weather (less rainfall) – bring down yields of FFB.

La Nina – High rainfall & flooding – disruption to harvest – lower FFB. Conversely high rainfall will result better FFB yield.

 

Soybean

Soybean producers are China, US, Brazil, Argentina. See link below: La Nina will have impact on Soybean as well. Soybean price will affect CPO price as both are major vegetable oils.  

https://www.indexmundi.com/agriculture/?commodity=soybean-oil&graph=production

Major Vegetable Oil consumption is as follows:




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