Easing of Covid-19 Restrictions in China, Supporting CPO Prices

Price movements for CPOTR increased by 12% in a week to a level of IDR 13,450/Kg. The strengthening that occurred in CPO was supported by expectations of an easing of strict Covid-19 controls in China, which is the world's main CPO importing country. China, as a country implementing the Zero Covid policy, has put pressure on demand for a number of key commodities, including CPO, as has happened in recent weeks, causing a decline in CPO prices. With a lot of pressure and demonstrations from Chinese citizens regarding the policies for handling Covid-19 this time, and the public protesting with the motto "down with Xi Jinping" and forcing the government to issue policies that could defuse the situation in China. After conditions began to subside, the Chinese government began implementing the elimination of the Covid test requirement for public spaces in Beijing, and this became a positive outlook for the Chinese economy, including demand for key commodities including CPO, pushing CPO prices further up. Furthermore, ifthe world's second largest economy has lifted restrictions, Malaysian palm oil exports will continue to increase, stocks will tend to be lower and prices are expected to remain above RM 4,000.” In terms of production, according to MPOC, Malaysia's CPO ranges between 18.5 million and 18.9 million tons next year, while Indonesia will reach 51 million tons, up 3% YoY. And this will be in line with additional jobs.

Market View

US Dollar Support Against CPO Prices

After the FOMC meeting conducted by the Fed some time ago, gave birth to several monetary policies that would be beneficial for USD movements. In his speech, the Chair of the Fed Jerome Powell said he would slow down the pace of interest rate hikes, seeing that the current economic conditions in the US were starting to improve. This was also corroborated by the release of positive US macroeconomic data as well as solid US employment data. This shows that US employment conditions, meaning that these figures show that the labor market remains tight. This indicator states that there is an estimate that the inflation rate in the US is starting to recede and this shows that there is potential for an increase in the movement of the USD currency.

The advantage of a stronger US dollar for palm oil market players is from a production cost perspective rather than revenue. From labor costs, for example, which is a large cost component, if converted into US dollars it can be more competitive than other producers such as US-based farmers. In this case, there may be a slight advantage, in terms of production costs. On the other hand, Malaysia's palm oil export prospects will also remain strong, supported by a weaker ringgit compared to the USD as well as wider discounts for other substitute oils, such as soybean oil which is facing uncertainty in the supply of sunflower oil from the seed corridor initiative. Black Sea grain on which global security depends on the renewal of a UN-brokered agreement allowing Ukrainian grain exports, given the fragility of the situation and its ample availability.

Weekly Economics Data & Event Calender

Date	Data/Events	Actual	Expectation	Previous
9-Desember	MY - Retail Sales YoY OCT	-	19%	30.0%
12-Desember	MY - Unemployment Rate OCT	-	3.7%	3.6%
12-Desember	MY - Industrial Production YoY OCT	-	9.1%	10.8%

Source: ICDX Research