The crude palm oil futures contract on Bursa Malaysia Derivatives is expected to trade higher next week. This expectation came about because production in upcoming weeks will likely decrease.
Crude palm oil traders expect production to decrease because of the effects of the monsoon season. The adverse weather conditions it brings cause production to become more difficult. They also reduce the amount of crude palm oil stockpiled all over the country.
According to the latest statistics, Malaysia’s palm oil stockpile in December 2020 totalled 1.18 million tonnes. This figure represented a 24% decline from that of November 2020. It also meant that the country’s palm oil stockpile hit its lowest point since 2007.
Data which the Malaysian Palm Oil Association (MPOA) compiled provided clear evidence of a slide in production. It showed that Malaysia produced 1.3 million tons of crude palm oil in December 2020. This statistic represented a fall of 12.23% from November 2020’s numbers.
An increase in general crude palm oil prices across the country will also probably continue in future weeks. This increase directly relates a worldwide increase in soybean oil prices. The aforementioned reductions in palm oil output and stockpiles will further serve to intensify this price increase.
The crude palm oil futures contract for January 2021 increased by RM106. Its value now stands at RM3,997 per ton. Similarly, the futures contracts for February, March, and April 2021 all rose. Their values increased by RM210, RM230, and RM235 to RM3,974, RM3,830, and RM3,709 respectively.
The total weekly volume saw an increase. It increased from 138,285 lots in the previous week to 370,671 lots in the most recent one. Open interest, meanwhile, went from 196,440 contracts in the previous week to 206,172 contracts in the most recent one.
In related news, industry experts now believe that crude palm oil’s price discount to soybean oil will narrow in 2021. According to Oil World editor and CEO Thomas Mielke, the ongoing B30 biodiesel program in Indonesia will drive up palm oil prices against those of soybean oil.
“Long-term, I expect palm oil’s discount relative to soybean oil will narrow for an annual average, and that this should already occur for 2021 and I expect this to continue,” Mielke said.
“If Indonesia really continues with the current biodiesel program and further raises the export tax and export levy in February, it is going to be another reason to bring up the price of palm oil,” he added.
Mielke also noted the fact that a premium in the price of crude palm oil against that of soybean oil can only occur over a short time frame. However, the circumstances which increase the chances of such a premium currently affect the market.
11th January 2021 13:08
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