KUALA LUMPUR: RAM Ratings expects palm oil prices to slide further to RM2,300 per tonne in the second half of this year, having averaged at RM2,421 per tonne in the first half, as global supply continue to surpass demand.
In its notes to bondholders and other stakeholders today, RAM Ratings analyst Karin Koh noted palm oil prices have dipped to about RM2,100/MT of late.
This is amid soft demand, higher production of palm oil and vegetable oil traders’ concerns over the trade war between the US and China.
“Malaysia’s palm oil production inched up 2.0 per cent to 8.92 million tonnes in the first six months of this year. Indonesia similarly saw palm oil output rising 2.4 per cent to 18.37 million tonnes in the first five months of 2018,” she said.
“That said, we are expecting prices to be sustained between RM2,200/MT and RM2,400/MT in the 2H on the back of demand support from biodiesel and slowing oil palm harvest towards the end of the year,” Koh said.
She highlighted India’s raising of import duties on rival soybean oil, effective 14th June 2018 allows for more purchase of palm oil from Malaysia and Indonesia.
Also, the large price premium of over US$200 per tonne for soybean oil and palm oil is triggering more purchase of the cheaper palm oil.
As at end-June 2018, Malaysia’s palm oil inventory stood at 2.19 million tonnes – a stark contrast to a year ago which faced shortage, following the El Nino weather phenomenon.
Indonesia’s inventory level hit 4.76 million tonnes as at end-May 2018, attributable to robust production growth and sluggish exports.
On a broader note, the US Department of Agriculture expects global supply of vegetable oils to advance 5 per cent in 2017/2018, and 3 per cent in 2018/2019.
Koh noted Indonesia’s B20 biodiesel mandate in both subsidised and non-subsidised vehicles effective from 1st September 2018 would support palm oil prices to trade higher than the current RM2,200 per tonne.
B20 is a blend of 20 per cent biodiesel into 80 per cent regular diesel at fuel pumps.
“If effectively implemented, Indonesia’s biodiesel consumption is estimated to come in at four million kilolitres this year compared with 2017’s 2.5 million kilolitres.”
On a positive note, Koh highlighted Indonesia is planning to accelerate the use of its higher-blend B30 biodiesel next year, if road trials of trucks and trailers using the B30 blend show good results.