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Waiting game not likely to help CPO price

Publication Date : 16-10-2012

 

Today the views and projections to be imparted by international palm oil experts at the last day of Malaysian Palm Oil Council's (MPOC) International Palm Oil Trade Fair and Seminar (POTS) 2012 will likely chart the next course of direction for crude palm oil (CPO) well into 2013.

Will the big names such as Dorab Mistry of Godrej International, Dr James Fry of LMC International and OilWorld Thomas Mielke see it fit to revise upward their CPO outlook for the fourth quarter this year and first quarter 2013 following Malaysia's recent counter measures to stabilise prices and eased its current high stocks profile?

Also, will Dorab, the most well-followed palm oil trader, stand by his earlier forecast that CPO stocks in Malaysia will hit three million tonnes and Indonesia at four million tonnes, thus dragging the price lower to below 2,200 ringgit (US$719.66) by year-end?

Judging by the CPO movement yesterday, prices continued to take a beating despite the country's inventory-related measures, such as to slash CPO duty export, abolish the duty-free export quota, accelerate replanting and to consider migrating to B10 biofuel programme from the current B5 programme.

According to some quarters, the execution of the measures which will only start January 1 next year is far too slow.

“We are facing a dilemma in huge stocks right now. Why not quickly execute the lower CPO export duty and let it run parallel with the duty-free export quota rather than wait for another two months?”

By playing the waiting game, many felt that the effect of Malaysia's policy measures to combat the price decline will not be really effective.

Many also wonder whether the accelerated replanting programme and increased biofuel production would be implemented within the current fourth quarter this year.

All these “delayed” actions could lead to further stock build-ups that will depress CPO prices further by year-end.

Another question that comes to mind is that since the palm oil stock is increasing, will Malaysia have enough facility or storage capacity to meet with the increasing production and stocks in the future months?

Yesterday, Plantation Industries and Commodities minister Bernard Dompok had given the assurance that Malaysia had about 5.2 million tonnes storage capacity for palm oil stocks.

This is more than double the current record stocks of 2.48 million tonnes in September.

Having said that, while Malaysia may have a big storage for any stocks build-up, one must also bear in mind that the CPO is a perishable item, unlike rubber which can be stockpiled for many years.

Another important point is that CPO prices have now declined much below the forward prices traded for the last quarter of the year.

Will this situation trigger a series of deferment in delivery or defaults in CPO contracts from price-sensitve countries like China, India, Pakistan and Bangladesh? Should this take place, it will again add up to the huge stocks and possibly adversely affect the CPO price for the remaining part of this year.

Another food for thought will the local CPO suppliers also be allowed to go to the Bursa Malaysia Derivatives market to tender their CPO if the lower export duty measure fails to prop up prices?

Hanim Adnan is deputy news editor, The Star

 

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