Crude palm oil prices are expected to recover strongly

By Star Online: Business
22 November 2012

Rabobank: The commodity’s price to recover strongly in early 2013

KUALA LUMPUR: Crude palm oil (CPO) prices are expected to recover strongly early next year on slowing production and improved demand, according to Rabobank International.

Pawan Kumar, Rabobank's associate director for food and agribusiness research and advisory for Southeast Asia, said while the short-term outlook for CPO prices remained subdued on high supplies, the medium to long-term outlook for the commodity was still positive.

He said CPO prices could reach an average RM2,850 per tonne by the first quarter of next year.

“This would come after an expectedly sluggish performance in the three months to December 2012 with CPO prices expected to average at RM2,350 per metric tonne,” he said at a lsuncheon talk on the outlook for the palm oil and fertiliser markets here yesterday.

He said CPO prices remained weak now because of record high inventories amid subdued global demand. The three-month CPO futures are currently trading around RM2,450 per metric tonne, after having recovering from the year's low of RM2,250 per metric tonne in early October.

With CPO prices still trading at such competitive levels, analysts expected demand for palm oil to improve over the medium term.

In fact, Rabobank expects increased reliance on palm oil to emerge next year as stocks of the commodity's main competitor, soybean, would be drawn down.

The long-term outlook for palm oil remained positive, Pawan argued, and that this would benefit major palm oil producers, such as Malaysia and Indonesia, which collectively account for 85% of global palm oil production.

While Pawan expects both countries to continue expanding their palm oil production, such effort would prove to be challenging due to several factors, especially land availability.

Rabobank expected the focus on regional expansion for palm oil production to remain in Indonesia as Malaysia could possibly run out of land in another two to three years.

According to the financial group, Indonesia still had about 16 million to 17 million ha of suitable land for planting, compared with 500,000 ha of available land in Malaysia.

Rabobank also said it remained positive on its outlook for Asia's economy. The group's director and head of financial markets research for Asia Pacific, Adrian Foster, said:

“Asia will remain a positive factor for the globals economy, with China being the key one to watch, while Indonesia has become increasingly relevant and Malaysia has increased in relevance.”

Rabobank said China's gross domestic product (GDP) growth could accelerate to 8% next year, after growing at an estimated 7.7% in 2012, while that of India could accelerate to 6.2% in 2013 from 5.6% this year.

Malaysia's economy, on the other hand, was expected to grow 5% next year, after growing at an estimated 5.2% this year. Foster conceded that his outlook for Malaysia's economy was rather bullish compared with the general consensus that expected Malaysia's GDP to grow at 4.7% and 4.9% for 2012 and 2013, respectively.

[Source]