LINGERING uncertainties emanating from multiple changes in Indonesia’s regulations relating to palm oil exports and its impact on the country’s palm oil export volume have been identified as one of several factors that could impact crude palm oil (CPO) price direction in the coming months.
Indonesia has announced a 20% Domestic Market Obligation (DMO), plans to change export levy (to be announced), plans to implement a Domestic Price Obligation (DPO) for 300,000 metric tonnes (MT) of cooking oil/month, according to CGS-CIMB Research.
“There are also plans to audit the palm oil sector in Indonesia,” head of research Ivy Ng Lee Fang and analyst Nagulan Ravi pointed out in an agribusiness update.
“We are of the view that palm oil exports out of Indonesia are likely to rise in the coming months. However, there is some uncertainty due to constant tweaks to the export ruling.”
The second event is the speed at which foreign workers are recruited by Malaysian palm oil producers post the Hari Raya holidays to raise productivity at estates, according to CGS-CIMB Research.
Malaysia Palm Oil Association (MPOA) CEO Datuk Nageeb Wahab said the Government has agreed to allow the entry of 20,000 workers whose applications were approved before borders were shut in 2020 in addition to an allocation of 32,000 workers to ease the on-going labour crunch.
“However, the 52,000 workers allowed will only address part of the labour shortage of around 100,000 workers,” cautioned the research house.
Other factors that will influence edible oil prices are weather in key planting areas and new developments in the Russia-Ukraine conflict.”
CGS-CIMB Research has kept its CPO price forecasts at RM5,600/MT for FY2022F and RM3,800/MT for FY2023F with a “neutral” call as CPO price may have peaked or be close to peaking as oilseed farmers are expected to react by increasing supplies in 2H 2022F.
To re-cap, spot CPO price in Malaysia grew by 3% month-on-month (mom) to an average of RM6,873/metric tonne in May, which is a record monthly average CPO price for Malaysia due to Indonesia unexpectedly banning palm oil exports from Apr 28 to May 23, leading to a stronger-than-usual demand for Malaysia palm oil.
In a related development, CGS-CIMB Research expects Malaysia’s CPO output to likely fell by 1.4% mom and 8.3% year-on-year (yoy) to 1.44 million MT in May 2022.
“The decline is likely due to fewer working days at the estates due to International Workers day and the Hari Raya celebrations from May 1-3,” projected the research house.
“Meanwhile, palm oil exports likely grew by 22.5% mom and 2.1% yoy to 1.29 million MT based on export statistics by cargo surveyors Intertek (+24.6% mom), SGS (+20.5%) and Amspec Malaysia (+22.4% mom).” – June 7, 2022
