Sluggish CPO prices overshadowed by China's Covid-19 infection rate increase

Price movements on CPOTR experienced a downward trend of 9.97% to the level of IDR 10.835/Kg. In the news circulating, China has again implemented a regional lockdown due to China’s zero Covid policy implementation. Major cities such as Shenzhen in the south and Dalian in the northeast have also stepped up Covid restrictions this week, ranging from work-from-home requirements to the closure of entertainment businesses in some districts. This can disrupt demand because China is one of the world's largest CPO consumers.

From the Malaysian side, MPOB released data that Malaysia's CPO inventory at the end of August 2022 increased by 1.023 million tons, a 7.7% increase compared to 2021, this figure was also the highest stock in 2022. In addition, Malaysian CPO production in August also increased 1,726 tons compared to the previous year. In news circulating the Indian Solvent Extractors Association (SEA) reported that India's palm oil imports in August 2022, jumped 87% from 530,420 tonnes to 994,997 tonnes and became the highest level of Malaysian CPO purchases in 11 months. Although there is an increase in stock and production of Malaysian CPO, the weak CPO price in the past has made Malaysia's export performance increase.

Contributing to further pressure on CPO prices, the decline in CPO prices was also influenced by the prices of other alternative oils, such as soybean oil as they compete for a share in the global vegetable oil market. On Wednesday (7/9), soybean oil prices in Dalian and Chicago Board of Trade both decreased by 3.4% and 2.2%, respectively.

Market View

The Association's request regarding the revocation of the DMO policy

Head of the Palm Oil Farmers Association (Apkasindo) Gulat Manurung (14/9) said the average price of fresh fruit bunches (FFB) for independent smallholders is still below the target of the Ministry of Trade at IDR 1.750 per kilogram, even though the price of FFB independent smallholders in several provinces have reached over IDR 2.000, but in other areas the price of FFB for independent smallholders is still at a low level of IDR 1.400. One of the causes of the slow increase in farmers' FFB prices is the regulation to fulfill domestic supply or DMO so that it creates uncertainty over FFB prices. Gulat also added that this restriction made the company unable to ensure that its production for domestic fulfillment was according to the schedule set by the company, so that sometimes the company hesitated to export the rest of its palm oil supply.

WEEKLY ECONOMIC DATA & EVENTS CALENDAR

Date	Data	Actual	Ekspektasi	Sebelumnya
20-September	MY - Balance of Trade AUG	-	-	MYR 15.5B
20-September	MY - Exports YoY AUG	-	-	38%
20-September	MY - Imports YoY AUG	-	-	41.0%

Source: ICDX Research