During the week, crude palm oil (CPOTR) contracts were observed to be moving in a bullish trend and closed the week with a significant appreciation of 5.26% - closing at Rp 17,600 per kg. Taking advantage of the fundamentals again, CPO prices have rebounded after previously falling to a pessimistic level at the end of November. There is an imbalance of supply and demand levels, so the strong reason behind the price rally.
The rise in CPO prices was triggered by several statistical releases by one of the world's giant CPO producers, namely Malaysia. At the end of December 2021, CPO stocks in Malaysia were released at 1.73 million tons. Down 4.9% from the previous month. Meanwhile, production also fell 18.6% to 1.49 million tons – recorded as the lowest production since March 2021. Domestically, the Indonesian Palm Oil Association (GAPKI) projects that the supply or supply of vegetable oil, which includes CPO, in 2022 will still be under pressure as production pressures persist – which pushes the production rate to increase, which is projected to be only 1 million tons, much different from the previous figure of 2 million tons.
On the other hand, demand for CPO still tends to be high ahead of year-end celebrations, and is expected to increase along with a number of major holidays in the next few months, such as Chinese New Year, Ramadan fasting, and Lebaran. Also, the surge in world crude oil prices remains the catalyst for the skyrocketing vegetable oil prices in the global market this week. As a comparison, the increase in soybean oil prices on the Chicago Board of Trade market – which has risen 4.3% point-to-point has also contributed to the increase in CPO prices. Soybean oil is a substitute for CPO for consumption. So that the movement of soybean oil prices will affect the movement of palm oil prices.
Supply Disruption to Move CPO Prices?
Malaysia, as one of the top CPO producers, were reported flood in several areas, such as Kelantan, Terengganu, Pahang, Johor, Malaka, Negeri Sembilan, and Sabah. The floods in several areas were being worried by market player that may tightened the supply side as the flood may cause the producer to stopped their production. Will the flood in one of the top CPO producers cause the CPO prices to move higher, as the CPO prices is currently moving higher since mid December?
MY – Markit Manufacturing PMI DEC
IN - Imports Prel DEC
CN – Caixin Manufacturing PMI DEC
EIA - Crude Oil Inventories
CN - Caixin Services PMI DEC
Source: ICDX Research