13/11/2007 (The Star Online), Petaling Jaya - Crude palm oil (CPO) prices eased yesterday as the drop in export volume raised concerns that prices might have gone up too quickly to sustain demand.
Analysts, however, believe that the longer-term outlook for the golden crop remained favourable, with 2008 expected to be another bumper year.
The Malaysian Palm Oil Board (MPOB) in releasing its latest monthly statistics yesterday said exports declined 4.4% to 1.33 million tonnes in October from 1.39 million tonnes in the preceding month.
Meanwhile, an independent cargo surveyor estimated that shipments of palm oil overseas dropped 11% during the first 10 days of November compared with the same period last month. The lower exports contributed to palm oil inventory in October rising to an 11-month high of 1.56 million tonnes, despite a 1.4% drop in production during the same month, MPOB data showed.
The most active CPO futures contract slumped RM71, or 2.4%, yesterday to RM2,919 a tonne. The contract, which has surged 49% since the start of the year, hit a record RM3,013 per tonne last Friday.
“CPO prices are now in unchartered territory and it remains to be seen at what price demand will start to falter,'' OSK Investment Bank plantation analyst Alvin Tai said in report yesterday.
The firm expects CPO price to average RM2,470 per tonne if prices were maintained at current levels.
Prices of palm oil and soybean oil have been rising in tandem with surging crude oil prices amid increasing demand for the vegetable oils as fuel substitute.
Crude oil was traded at near US$96 per barrel yesterday, up 64% so far this year.
Palm oil, which is the cheapest among vegetable oils, is widely used in Asia for cooking and to make cosmetics.
Meanwhile, OSK has raised its 2008 average price target for CPO to RM2,750 a tonne, saying that in the current strong demand environment, a shortfall in supply was likely to lead to a steep rise in prices.
“We believe another supply shock could take shape in 2008, owing to the lower than expected production in Indonesia,'' it said.
Dry weather earlier this year had contributed to production shortfalls in Malaysia and Indonesia.
MPOB's has forecast this year's palm oil production at 15.4 million tonnes, down from 15.88 million tonnes in 2006.
Output from Indonesia is expected to rise, as a decline in production yield would be offset by a large increase in plantation acreage. However, production is likely to miss the year-end target of 17 million tonnes.
The combined production from Malaysia and Indonesia accounts for more than 85% of the world's palm oil output. The bullish outlook for CPO also means that OSK is maintaining its overweight stance on the sector, with buy calls on IOI Corp Bhd, Asiatic Development Bhd and IJM Plantations Bhd.
Also, sustained high CPO prices would generate excess cash for planters, which would encourage them to undertake mergers and acquisitions activities, especially among the pure plantation firms.