FGV: Covid-19 Recovery Crucial For CPO Outlook, Expected Price Of RM2,200-2,400 Per Tonne

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Although crude palm oil (CPO) remains stable for the first quarter of 2020 in spite of the challenges brought by Covid-19, its outlook nevertheless, depends crucially on worldwide recovery from the pandemic, FGV Holdings Bhd said.

The plantation company expects CPO prices to trade between RM2,200 and RM2,400 per tonne this year against RM3,000 per tonne level recorded at end-2019.

Yesterday, spot month CPO contract stood at RM2,060 per tonne.

“Among the key factors supporting this price (RM2,200-RM2,400 per tonne) include the biodiesel demand, lower production and the impact of Covid-19,” FGV said in a filing to Bursa Malaysia recently.

It said the demand from Indonesia’s B30 and Malaysia’s B20 implementation are likely to absorb any significant rise in the production, leaving inventories at around two million tonnes.

Indonesia’s B30 implementation may use up to 10 million tonnes of palm oil while Malaysia is projected to consume up to 1.3 million tonnes, which is 75 per cent and five per cent higher, respectively, compared to the previous year.

Plans by Indonesia to implement B50 biodiesel by 2021 will ensure the country consume as much as 14 million tonnes of palm oil, thus continuing to tighten the supply.

As for the lower production of the commodity this year, it was the impact from the cutback in fertiliser usage in 2019 and weather challenges that are likely to impact production in 2020, FGV noted.

Malaysia’s production is expected to be lower at around 19.3 to 19.6 million tonnes following three years of higher production.

Meanwhile, the Covid-19 spread which has claimed more than 220,000 deaths worldwide will threaten stoppages of operations in the estates and mills and affect CPO supplies.

“As countries step up their fight against the pandemic, new restrictions on logistics services will also affect movements of CPO, thereby impacting inventory levels.

“China’s recovery from the pandemic after not more than three months of lockdown in Wuhan, which caused restrictions on the movement of trade between countries, provides relief as demand for CPO is expected to increase as China replenishes its stockpile.”

Nevertheless, it said, competition from Indonesia would remain due to its lower cost.

There is also the expectation of excess quantities from India and other countries as they embrace the challenges of the pandemic in their respective countries, which may involve logistical restrictions on the movement of CPO and stoppages of business operations in the destination countries.


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