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Expectations of Declining Production are Back to Support CPO Prices
Expectations of Declining Production are Back to Support CPO Prices
Wednesday, 18 August 2021

Price Performance Indicators

Product

Previous Week

% Change

CPOTR

Rp 15,290

0.46%

FCPO

MY 4,520

0.22%

Soybean Oil

$63.41

0.16%

COFU

$67.88

0.07%

USD/MYR

MY 4.2170

0.45%

USD/IDR

Rp 14,369

0.13%

CPOTR Focus:

  1. CPO prices closed the week with a slight appreciation of 0.46%
  2. After the rally, CPO prices enter its consolidation phase

The crude palm oil (CPOTR) contract closed last week with a thin TV appreciation of 0.46% to the level of Rp 15,290,- per kg. An expectation of lag on the production activities has become the main factor supporting the increase in CPO prices. This sentiment came to cheer the collapse of CPO prices at the beginning of the week behind investors' act of profit-taking.

Market’s act of taking advantage of profit taking is still the cause of the CPO price correction at the beginning of this week. It is understood by some market analysts, even though it is now down, the overall CPO price at ICDX still recorded an increase of above 6% in the past week, and if it is pulled further, in the past month, the price has shot above the 20% mark.

Also, CPO price pressure is still being felt from contradictory confirmations that actually come from the side of Malaysian trade data, which has not shown any recovery in stable demand levels. Malaysian palm oil exports during August 1-15 fell between 15% and 24% from the same period in July. This data continues from the preceding data for the period August 1-10 which also recorded that Malaysia's palm oil product exports for August 1-10 fell 12.8% to 364,546 tons from the same period in July.

So on the other hand for fundamental reasons, the constant talk of production losses in Malaysia and Indonesia and expectations of lower residual palm oil stocks for the new season, has substantially boosted prices. Expectations of a decline in production are caused by the still worrying situation of the Covid-19 pandemic. This negative development has forced governments in major CPO-producing countries, such as Indonesia and Malaysia, to limit people's activities and mobility. Until finally, more or fewer policies affected CPO production, due to the reduced number of workers in the plantation sector.


Market View

Malaysia’s Supply Crunch Effected by Lower Worker

COVID-19 cases in Malaysia is still surging through 20.000 cases per day, this surging cases had caused the Malaysian’s government to close the border and suspended the out shore worker. For information, Malaysia’s CPO industries were 80% depending on out shore worker which from Bangladesh and Indonesia. With lower worker, Malaysia had suffer supply crunch with showed by MPOB’s data that current stock fell by 7.3% at the end of July. Will the COVID-19 cases kept higher and continue to caused support CPO price?

WEEKLY ECONOMIC DATA & EVENTS CALENDAR

Date

Data/Events

Actual

Expectation

Previous

16-Aug

IN – WPI Food YoY JULY

0.00%

-

3.09%

16-Aug

CN – Industrial Production YoY JULY

6.40%

8.20%

8.30%

16-Aug

CN – Retail Sales YoY

8.50%

12.30%

12.10%

18-Aug

US –   Crude Oil Inventories

 -

-1.5M

-0.4M

Source: ICDX Research

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