Up 0.6% at MYR2,908/tonne on 13/12/19, the price of Crude Palm Oil is extending its bullish run and may offer more upside in coming months on the back of a tight supply situation and sustained strong demand from importing countries like China.
Malaysia’s official data released earlier this month showed a 4.1% on-month drop in stocks to 2.3 million tons in November. The contraction took place as a result of weaker output which shrank by a larger margin than the reduction in export orders. Exports to China however ballooned by 23.5% during the same period to 340,235 tons driven largely by pre-Lunar New Year stocking.
We anticipate sustained buying strength from China beyond this festive demand based on the recently signed MOU between China Chamber of Commerce of Foodstuff and Native Produce to increase Palm Oil purchases by 1.9 million tons between 2019 and 2023. Similarly, the partnership with Bohai Commodity Exchange to supply 1.5 million tonnes of CPO to China by 2020 may provide additional support to the current upward trajectory in CPO price.
While demand factors are price supportive, the decision by the Malaysian Government to reintroduce the export tariff of 4.5% on CPO effective January 2020 from a tax free exemption in August 2018 is expected to reinforce the price uptrend. All eyes will be on Indonesia and if they plan to follow suit, as it would shed light on the progress made with the planned implementation of B30 biodiesel mandate.
CPO price may face resistance at MYR3,033 (April 2008 trough) to MYR3,202 (Dec 2016 peak) in the near term while downside risk may be limited around MYR2,780 and MYR2,720.
