KUALA LUMPUR – CGS-CIMB expects crude palm oil (CPO) prices to trade between RM3,000 and RM3,500 per tonne this month in view of the projected low inventory in the country, which will take time to rebuild.
It estimates Malaysia’s palm oil inventory probably grew 7.5% month-on-month (m-o-m) but declined 22.5% year-on-year (y-o-y) to 1.36 million tonnes at end-January 2021.
“This is a deviation from the historical trend whereby palm oil stocks typically decline in January, at an average of 8% m-o-m over the past 10 years. This could be due to the rush to export palm oil in December ahead of the reinstatement of export tax on CPO of 8% in Malaysia on January 1.
“Also, the January palm oil stock level averaged 2.1 million tonnes for the past 10 years. Official figures will be released on February 10,” it said in a note today.
In average, CPO price rose 3.5% m-o-m and 24% y-o-y to RM3,748 per tonne in January on concerns over the low inventory level of palm oil.
CGS-CIMB said findings from a survey of palm oil areas by the CGS-CIMB Futures team revealed that Malaysia’s CPO output probably fell 14% m-o-m (2.1% y-o-y) to 1.15 million tonnes in January this year.
It said the decline in production is wider than the historical trend of a 12.5% m-o-m fall in January output over the past 10 years.
“Our survey revealed that Sabah’s estates posted the widest m-o-m drops in production,” it said, adding that on the other hand, the January output estimate of 1.15 million tonnes is lower than the past 10-year average of 1.35 million tonnes.
CGS-CIMB said the lower production versus historical numbers could be due to a shortage of foreign workers, seasonal factors and heavier-than-usual rainfall (possibly due to La Nina) observed in some parts of the country in January,” it noted.
It said Malaysian Palm Oil Association chief executive Datuk Nageeb Abdul Wahab has commented that the current freeze on recruitment of workers from foreign countries due to the Covid-19 pandemic has resulted in the doubling of the plantation sector’s labour shortage to around 70,000 from just 36,000 a year ago.
“He estimates the average production loss for Malaysian estates to be circa 20% due to the current labour shortage,” it said.
Meanwhile, palm oil exports likely fell 35% m-o-m and 13% y-o-y for January 2021, based on export statistics by cargo surveyors.
Intertek Testing Services estimates an exports decline of 37.2% m-o-m in January, Amspec Malaysia (-36.4% m-o-m), and SGS (-32.07% m-o-m).
In addition, CGS-CIMB expects palm oil supply to recover in the second quarter as weather conditions normalise.
The recent increase in India’s effective import duties on CPO could dampen near-term demand.
India raised the effective import duty on CPO to 35.75%, effective February 2, after revising import duties and imposing new cess.
However, there is no change to the effective import duty for crude soybean oil and crude sunflower oil, which remains at 38.5%. – Bernama, February 4, 2021
