Crude palm oil may fall as low as MR2,600/mt as Asian production recovers: CIMB's Ng

07.02.2017

Crude palm oil prices will remain "fairly firm" in the short term due to tight stocks, but prices could fall as low as MR2,600/mt or $587.24/mt by the second quarter, depending on the recovery of CPO supply, CIMB Bank Malaysia's Regional Head of Plantations, Ivy Ng, said on Monday.

Palm oil price movements in the next four to six months will depend on a few factors, which include President Donald Trump's biofuels policy, the price of soybean oil and how much soybean will be crushed by China during the year, as well as the weather, said Ng.

The biofuels policy will be a very important factor, she said, because if Trump unwinds the US biofuels policy, that would shut a major demand source for vegetable oils, such as palm and soy, thus directly affecting vegetable oil prices worldwide.

Since he is not a predictable leader or a career politician, Trump could upend the current US biofuels policy, in favor of oil, which will hit agriculture commodity prices and affect mid-Western US states, a key Trump constituency, added Ng.

Another factor that will influence CPO prices will be world soybean prices, said Ng. Chinese soybean demand would play an important part in determining soybean prices, she said.

Beijing has imposed anti-dumping duties on US dried distillers' grains, or DDGs, a key animal feed component, that would be replaced by soybean meal which has a high protein content.

If the Chinese crush more soybeans for feed milling, there would be more soybean oil, which would drive prices south, she added.

Assuming that CPO supply will recover according to market expectations and soybean prices fall, then CPO prices will have to come down in order to maintain both a competitive spread between palm and soybean oil and market share.

Finally, weather would be another important determining factor in CPO prices in the coming months, said Ng.

"Anything is possible when it comes to weather," she said, and there was a lot of speculation in the market including the possibility of another El Nino hitting the region, but right now that seemed to be a remote possibility.


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