CPO prices to fall to RM5,300 per tonne on average in 2H22, says MPOB

Crude palm oil (CPO) prices are expected to average RM5,300 per tonne in the second half of 2022 (2H22), lower than in 1H22, due to expectations of higher global vegetable oil supply, higher CPO production, especially in the third quarter, as well as lower palm oil exports, said the Malaysian Palm Oil Board (MPOB).

The agency said Indonesia’s decision to ease its export rules to encourage shipments and to reduce its high palm oil inventories will give tough competition to the palm oil industry here.

This came after Malaysia recorded higher exports when the world’s largest palm oil producer restricted its palm oil exports due to several measures implemented, such as the three-week export ban imposed from April 28 and domestic market obligation to ensure domestic supply availability.

During 1H22, CPO was traded 55.9%, or RM2,268.50, higher at RM6,330 per tonne on average, compared with RM4,061.50 per tonne during January-June 2021. In May 2022, the average CPO price hit a record high of RM6,873 per tonne.

“The higher CPO price during the period was influenced by higher global soybean oil prices, firmer Brent crude oil prices in the world market, palm oil stocks remaining below two million tonnes, lower CPO production and higher palm oil export demand,” director-general Datuk Dr Ahmad Parveez Ghulam Kadir told Bernama.

He said that for 1H22, exports of palm oil and other palm oil-based products (POPP) amounted to 11.47 million tonnes, up 2.8% from the 11.15 million tonnes recorded in the same period last year.

Ahmad Parveez said the higher prices of palm oil products boosted export revenue of POPP by 55.2% to RM67.48 billion in 1H22 from RM43.47 billion in the same period of 2021.

Exports of palm oil alone increased by 1.7% to 7.19 million tonnes from 7.08 million tonnes previously, representing 62.7% of total POPP export volume during the period under review, while palm oil export revenue surged by 54.5% year-on-year to RM44.63 billion from RM28.88 billion as a result of higher prices.

“Just when the industry was showing signs of recovery this year, the Russia-Ukraine war occurred and disrupted the global supply chain of sunflower oil, pushing up demand for palm oil as an alternative to sunflower oil.

“In addition, Indonesia’s ban on palm oil exports on April 28 placed further pressure on palm oil prices, pushing them upwards, which resulted in contraction of demand in some markets,” he said.

Palm oil prices, however, began to decline rapidly when Indonesia lifted the ban on May 23.

The MPOB said labour shortage is still one of the challenges that need to be addressed by the industry’s stakeholders.

Since 2021, there have been disruptions in the labour supply in oil palm plantations.

 The Malaysian Estate Owners’ Association, in a statement released last month, estimated that the oil palm industry had a shortfall of 120,000 workers.

According to MPOB statistics, there was a decrease in total employment in the plantation sector by 6.2% in May 2022 compared to the same period last year.

“Almost all categories of work in the plantations experienced a decline with the highest decline being for the category of work as a field worker (fertiliser application, weeding and pruning) and harvester and collector of fresh fruit bunches with a decrease of 8.5% and 6.8% respectively,” it said.

The agency said that if the problem of labour shortage is not addressed wisely, it may affect the Malaysian oil palm plantation sector’s competitiveness.

In 2H22, the country is expected to produce 10.2 million tonnes of CPO, bringing expected total production for 2022 to 18.5 million tonnes.

CPO production this year is expected to increase marginally by 2.1% due to expectations of an increase in matured planted areas and favourable weather conditions.

“However, the labour situation in the oil palm plantation sector has driven CPO production to be significantly lower than the potential business-as-usual scenario of nearly 20 million tonnes,” said the MPOB director-general.

He noted that on average, 90% of Malaysian palm oil production in 2H22 would be exported due to an expected stronger palm oil demand from major importing countries.

Thus, total palm oil exports in 2H22 are expected at 9.2 million tonnes, thus bringing total exports in 2022 to 16.65 million tonnes.

Meanwhile, the palm oil closing stockpile in 2022 is projected at 1.85 million tonnes.

Rakuten Trade vice president of research Thong Pak Leng said palm oil prices are likely to remain high beyond 1H22 and into 2023.

“Since international oils and fats supply was already tight, the Russia-Ukraine conflict compounded the supply bottleneck further.

“Already, rising grain prices are threatening to limit the prospective planting season for oil crops. Palm oil supply, however, looks set to improve seasonally, so expect some downward pressures on CPO prices, but prices will stay elevated due to tight overall edible oils and fats supply internationally,” he said.

Thong said the firm had set an “underweight” call on the plantation sector.

Separately, CGS-CIMB analysts Ivy Ng Lee Fang and Nagulan Ravi said weaker 2H22 CPO prices, coupled with higher operating costs due to a hike in the minimum wage in Malaysia to RM1,500 per month effective May 1, 2022, higher fertiliser costs, as well as Cukai Makmur (the Prosperity Tax), will lead to lower profit margins in 2H22 unless productivity improves.

“We keep our ‘neutral’ rating. Planters’ dividend yields of 4.9% could be supportive of their near-term share prices despite the bearish sentiment,” they said.

Tags: Production, Malaysia, palm oil, shipments, exports, CPO, export, 1H22, Indonesia, palm oil-based products, prices, MPOB, Vegetable Oil, Crude palm oil