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Mahamad Rodzi Abdul Ghani




Mahamad Rodzi Abdul Ghani





CPO may trade at premium to soya oil soon on outpu
05 April 2002 (Business Times) - PALM oil (CPO) prices may be at a premiumover its rival soyabean oil in the near term as the former is expected toface a decline in production by the year-end.Hamburg-based Oil World editor Thomas Mielke said it is possible that palmoil would trade at a premium to soyabean oil in the near to medium term asMarch stock is already lower than a year ago.“The monthly production data for March this year will probably be lowerthan March last year, and this will be an important factor that couldtemporarily lift palm oil prices above soyabean oil,” Mielke toldreporters on the sidelines of a palm oil seminar in Selangor yesterday.According to the Malaysian Palm Oil Board (MPOB), closing stock forFebruary was at 1.28 million tonnes, or a 14.1 per cent drop from 1.49million tonnes in the same month last year.Production in February declined to 773,341 tonnes, or a 13 per cent dropfrom 888,767 tonnes in the same month last year.The MPOB will release official production, stockpile and export figures byApril 12.Most industry observers said early this year that Malaysia’s palm oilproduction was expected to decline to around 11.5 million tonnes by theyear-end from 11.8 million tonnes last year because of tree fatigue.“The tightness in the oils and fats balance resembles that in 1997-98 whenMalaysia’s palm oil was sold at US$632 (US$1 = RM3.80) a tonne andArgentina’s soyabean oil was at US$617,” said Mielke.He added that weather developments will be of particular importance,noting that a moderate El Nino is developing and has begun to be felt inSouth-East Asia.“Unusually dry conditions since December or January are affecting palm andlauric oil production in Malaysia and parts of the Philippines,” saidMielke.Generally, palm oil has traded at a discount of between US$60 and US$100over the years.For example, Rotterdam palm oil price carriage, insurance and freight ofUS$300 a tonne will be at a discount of US$100 should soyabean be pricedat US$400 a tonne.This discount usually varies between US$60 and US$80 depending on soyabeanand palm oil prices, which fluctuate according to market demand.Industry observers have always maintained that the discount should benarrowed to between US$30 and US$40 and that being at a premium is notalways good for producers.“Should palm oil prices be at a premium naturally, buyers would opt forcheaper oils which in this case is not palm oil,” a trader said.Mielke said having palm oil prices at a premium over soyabean oil wouldnot be the first time as the former has been trading at a premium wheneverthere is a shortage in Malaysia.“Palm oil and soyabean oil have considerable rally potential for theremainder of the season as some key fundamentals show that the world’s 17edible oils and fats supply and demand outlook is tighter than currentprices suggest, said Mielke.Mielke said a sizeable slowing down of the growth in world consumption ofthe world’s edible oils will decline sharply by about 1.3 million thisseason.Malaysia is the world’s biggest producer at 11.80 million tonnes last yearof which 10.59 million tonnes were exported to 140 countries.