With economies in a cautious mode amid market volatility due to Covid-19, the price outlook for crude palm oil (CPO) is not going to be favourable, gravitating towards the cost of production of between RM1,500 and RM1,800 per tonne, veteran industry analyst Dorab Mistry said.
He said currently the market has discounted to trade at the RM2,000 level per tonne, and this price has yet to unfold post the fasting month of Ramadan, that is June and July onwards.
Mistry, a director at Godrej International, said that the medical emergency taking place following mounting Covid-19 has caused an economic emergency which disrupted world consumption of the commodity.
And he warned that consumption of vegetable oil cannot turn back to normal in the time of serious illness.
“The pandemic happening across the world has resulted in severe contraction of the economy, hence, destroying demand for biodiesel, which the Indonesian government initially planned for this year, followed by Malaysia,” he said.
Mistry was speaking during a Zoom Webinar platform conference on the “Current market situation and future outlook of the vegetable oil industry” hosted by the Solvent Extractors’ Association of India in association with Globoil.
Also participating in the dialogue was joint secretary (oilseed) of the Indian Ministry of Agriculture and Farmers Welfare Shubha Thakur.
It was noted that the implementation Indonesia’s and Malaysia’s biodiesel will likely use up to 10 million tonnes and 1.3 million tonnes of palm oil, respectively.
Mistry said the link between vegetable oil and energy is now extremely strong and if world consumption of transport fuel is reduced by 30-40 per cent, vegetable oil producers may lose the biodiesel demand by between five and six million tonnes.
And unfortunately biodiesel is going to be palm-oil based, he cautioned.
“I don’t think this demand will recover in the second half of the year. In fact, in second half of the year, we may lose some demand and overall in the whole year, we may lose biodiesel demand. You can see for yourself, when was the last time you went to refill fuel at the gas station?” he said.
Mistry described the palm oil’s bull market when the rice hit RM3,000 level per tonne from end of last year until January 2020 as the “shortest bull market in the history”.
On production, he said in the second half of this year, most of the vegetable oils are going to experience good production, thanks to the climate.
“Since the El Nino, there has been dramatic improvement, particularly in the last six months when there are rainfall in South-east Asia and we have a plentiful rain and now with the current price and very good fertiliser application, we shall witness a very good recovery in palm oil production,” he said.
With the relatively good crop in almost all part of the world, hence, the shrinking import of Malaysian palm oil, he said India may import only 7.5 million tonnes of palm oil this year from 9.0 million tonnes previously.
Based on recent data from the Malaysian Palm Oil Board, shipments from Malaysia to its top customer India is expected to decline to a fresh record low in April due to Covid-19 lockdown and import curbs by the Indian government.
In March, Malaysia exported only 10,806 tonnes to India, a contraction of 97 per cent.