Crude palm oil futures on Bursa Derivatives Exchange have hit their highest point since 2012. On Thursday, the figure reached a peak of RM3,420 per tonne. At the end of the day, crude palm oil futures were worth RM3,344 per tonne.
The value of the futures soared because palm oil stocks in Malaysia are low at the moment. Many of these stocks will be brought forth to 2021. A low level of soybean inventory is also a factor in the futures’ high values.
The value of crude palm oil futures has been very high recently. In recent weeks, the value has consistently been more than RM3,000 per tonne. This fact has allowed plantation companies to benefit. Those who have a cost of production at around RM1,500 to RM1,800 per tonne of crude palm oil will especially benefit. They are expected to become much more profitable.
Research house UOB Kay Hian (UOBKH) said that the total amount of palm oil inventory in four countries at the end of September 2020 weighed nine million tonnes. The four countries are Indonesia, Malaysia, India, and China. This amount is 31% lighter than the weight of the same inventory at the end of December 2019.
UOBKH believes that crude palm oil prices will be traded at higher prices during the first half of 2021. This is because palm oil supply is expected to remain low.
UOBKH is maintaining a market weight on the regional plantation sector. It does not expect the higher crude palm oil prices to lead to increased profits. “This is considering the lower production in the fourth quarter of 2020 and even into the first half of 2021. While the high CPO prices may stay for now, we cannot overlook the volatility that arises from the high prices,” it said.
The inventory level of palm oil is not expected to increase any time soon. According to UOBKH’s latest report, it will remain at around the same level over the next four to six months.
Palm oil is not the only oil which faces this problem. The inventory level of soybean oil, a direct competitor of palm oil, is currently rather low. However, this low inventory level might change after the end of the next planting season in the United States.
According to UOBKH, “the stronger-than-expected soybean demand from China has led to four months of downward revision on soybean stock-usage ratio by the US Department of Agriculture (USDA)”.
UOBKH noted that sentiments about soybean demand are strong. This is because 60% to 70% of US soybean production has been sold to China. Although Brazil’s soybean planting has been increasingly quickly, it has not changed the demand relationship between the US and China.
20th November 2020 15:26
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