Going into the second half of the year, many quarters are anticipating the country’s steep palm oil stocks can be reduced considerably – thanks to the nationwide implementation of the B5 biodiesel programme that takes effect this month.
It is envisaged that some 500,000 tonnes of palm oil annually would be taken up from the palm oil stockpile for B5 biodiesel that will be used in the Government’s subsidised and non-subsidised sectors.
(The B5 biodiesel is a blend of 5 per cent palm oil or palm methyl ester (PME) with 90 per cent diesel fuel)
The Government’s strong push for the biodiesel mandate could translate into the steep domestic palm oil stocks being reduced to below one million tonnes and also provide a floor price for CPO at RM2,000 per tonne.
In June, the Malaysian Palm Oil Board reported that palm oil stock had already dropped to 1.66 million tonnes compared with 1.84 million tonnes in May.
Traditionally, the local palm oil inventory level is closely monitored by market players as it is used as the yardstick to gauge the next CPO price direction. The lower stock pile would normally signal that higher CPO prices are in the offing.
However, these bullish fundamentals are not being reflected in the current CPO prices, which are trending lower at RM2,290 to RM2,360 per tonne from its high of RM2,901 per tonne in March.
Experts said the CPO market actually had been spooked by recent reports that Malaysia’s palm oil stocks would breach 2 million tonnes by year-end.
Of late, many regional market analysts are speculating that palm oil stock could escalate to 2 million-2.4 million tonnes by end-2014, and possibly match the historic high of 2.6 million in 2012.
Contrary to earlier estimates, experts pointed out that the global palm oil production by the world’s largest producers – Indonesia and Malaysia – this year is expected to be higher at 30.4 million tonnes and 19.4 million tonnes respectively.
There will be more new oil palm maturing areas in East Kalimantan, Sarawak and Sabah this year that will trigger higher production.
Should this scenario occur, the CPO price could be dragged to trade below RM2,200 per tonne in the later part of this year, of which palm oil plantation owners could be experiencing some margin erosions.
On the flip side, when CPO is trading below RM2,200 per tonne, some quarters said the country’s lacklustre biodiesel industry could be deemed feasible due to the availability of cheaper palm oil feedstock to be converted into PME.
At the same time, the fortunes of oil palm plantations players could also be hit, should weaker CPO prices persist till year-end.
Among plantation companies, a mere RM100 increase or drop in the CPO price per tonne could translate into additional or reduced contributions to group profits.
For Sime Darby Bhd, every RM100 per tonne change in the CPO price would result in an “addition or reduction” of RM250mil to the group’s profit. Similarly, for Felda Global Ventures Holdings Bhd, every RM100 change in the CPO price could result in a RM100mil change in profit.
Despite the uncertainties ahead and the CPO price currently trading lower at RM2,250 per tonne, some quarters maintained that planters in Peninsular Malaysia would continue to reap in profits as their average CPO cost of production (COP) is still good at RM1,200 per tonne. The COP for Sabah and Sarawak planters’ is RM1,300 per tonne and RM1,600 per tonne respectively.
