RAM: CPO prices to moderate sharply in second half of 2017

PETALING JAYA: RAM Ratings is maintaining its average full-year crude palm oil (CPO) price forecast at RM2,300 to RM2,500 a tonne despite stronger-thanexpected prices in the first quarter of the year.

CPO prices averaged RM3,152 a tonne in the first quarter as inventory remained tight despite a strong rebound in production.

On Bursa Malaysia Derivatives yesterday, spot month June 2017 fell RM5 to RM2,738 a tonne.

RAM said CPO prices have averaged between RM2,400 and RM2,600 a tonne since April, which are within its expectations for the second quarter.

It is of view that the buoyant prices are unsustainable and are projected to moderate sharply in the second half as the market struggles to absorb increased production during the peak production season and crop yields recover from El Nino weather conditions in 2015/2016.

Malaysia’s CPO production rose 17.9% year-on-year (yoy) to four million tonnes in the first quarter. Indonesia’s output also recovered, rising an estimated 8.1% yoy in the first three months.

While local inventory levels were 17.6% lower y-o-y as at the end of March this year, RAM Ratings expects inventory to build up in the second half, putting pressure on CPO prices.

Malaysia’s palm oil exports remained relatively flat y-o-y in the first quarter due to weaker export demand and competition from Indonesian palm oil.

“For the full year, we expect demand for CPO to be fairly healthy on the back of modest recovery in global growth and the ongoing implementation of biodiesel mandates in key producing countries, albeit falling short of absorbing incremental supply,” the rating agency said.