CPO prices are to remain elevated at least for the first half if this year, in summary, the CPO price began steadily at RM5,214/tonnes in early January 2022, witnessed active accelerations to RM8,077/tonnes in March, and then dipped to RM5,105/tonne in June. Several factors lingering including the Russia-Ukraine dispute, Indonesia’s export ban, and lowering its maximum PO export tax and levy to $488/tonnes, resulted in Malaysia’s CPO being less appealing due to price discounts, low PO production cycle seasons (2–3Q), and sentiment concerns on demand as inflationary fears set in, were contributing to this sharp decline.
Echoing the same pattern share ahead, MIDF predicts that average local CPO delivery prices would climb by +13% to RM4,288/Mt (following distortion on Indonesia’s PO) level in April, and then decline by -11% to RM3,837/Mt in May after Eid Al-Fitr Festival as a result of the Indonesia government’s decision to lift the export restriction in order to reduce glutting stockpiles.
With the government of Indonesia (GOI) reiterates its commitment to ensuring ample cooking oil supplies at least 50% to 450,000 tonnes a month, until April. This would result in higher food component consumption growing by +10% in CY23 based on Gapki forecast.
Aside from note, following the implementation Biodiesel blending mandate to 35% in Feb 2023 (expanding from the current 30%), this would translate to 11m tonnes of CPO absorption, up by 8.9m tonnes yoy. This would resulted in higher Biodiesel component consumption growing by +29.3% in CY23 based on Gapki forecast.
During the export ban, the risk remains within the bloated tanks cause the ripple effect is that once the tanks are full, palm oil mills will stop operation due to stocks overcapacity, which in turn will result in no purchase of FFB from oil palm farmers. In conclusion, sales volume will be affected, and this has been seen in 6MFY22 performance of TSH, Sime Plant, IOI, and GENP where their FFB production has eased to -10%/ -6%/ -6% and -4% respectively due geographical production exposure
The CPO price is expected to trade volatile in the months of February to March, downside risks are a fragile demand outlook on the back inflationary pressure coupled with tight household spending on high base interest rate locally and globally another Indonesian extension of zero-levy policy for PO exports in CY23.
