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There is Wisdom Behind Negative Sentiment, CPO Prices Took Advantage
There is Wisdom Behind Negative Sentiment, CPO Prices Took Advantage
Monday, 19 July 2021

Price Performance Indicators

Previous Week

% Change

CPOTR

Rp 13,830

2.28%

FCPO

MY 4,020

6.97%

SOYBEAN OIL

$62.41

9.45%

COFU

$74.63

-4.30%

USD/IDR

MY 4.1890

0.43%

USD/MYR

Rp 14,548

-0.21%

  • (18/06 – 25/06) Crude oil prices rose 2.90% weekly
  • The spike in COVID-19 still haunts producing countries

Market Review

The crude palm oil (CPO) contract closed last week with a weekly appreciation of 2.28% to the level of Rp 14,145,- per kg. The sentiment around the CPO market, which tends to be responded negatively by the market, has in fact provided its own positive catalyst for prices. The political turmoil from the main producing country Malaysia, as well as the chaos related to COVID that hit the two main CPO producing countries, namely Indonesia and Malaysia, are the headlines that need to be underlined.

From within Malaysia, the weakening of the Malaysian Ringgit (RM) exchange rate was gradually supporting the price of CPO. As a reminder, in the reference exchange, CPO is denominated in RM, so that when the currency weakens, the price of CPO becomes cheaper for investors holding other currencies – boosting demand and increasing prices. Behind that is the headline of Malaysia's heated political situation. UMNO, a coalition of parties supporting the government, withdrew its support for Prime Minister Muhyiddin Yassin because it was deemed to have failed to handle the pandemic. This political turmoil has made investors keep their distance from the Malaysian financial market, which has an immediate negative impact on the Malaysian Ringgit exchange rate.

On the other hand, from fundamental reasons, one of the causes of the increase in CPO prices is the risk of a decline in supply. This is because Malaysia and Indonesia, the two largest CPO producing countries in the world, are being severely affected by the new wave of the Delta variant of the COVID virus. The main response from the authorities of each country is to re-implement the restrictions on the activities of its people. In Malaysia, the policy is called the “Perintah Pembatasan Kawalan Pergerakan” while in Indonesia called “Pemberlakuan Pembatasan Kegiatan Masyarakat (PPKM) Darurat”. This restriction reduces human resources in various sectors, because mobility is indeed tightened. One of them is in oil palm plantations. As a result, the harvest could not be maximized and threaten the stability of the stock.

Nevertheless, the shadows from the same headline, especially from COVID-19, still deserve wider vigilance for investors, because the existing restrictions, sooner or later, will have a negative impact on the overall demand for CPO.

Market View

Rising COVID-19 Cases on CPO Producing Country

Indonesia and Malaysia, the largest CPO producers, recorded a spike in COVID-19 cases. Especially Indonesia, which in recent days has shown a record spike in cases. As for the development of Covid-19 cases during the 18 days of Emergency PPKM compared to the previous 18 days, it can be seen that the difference in cases has doubled. In the case of positive confirmation of Covid-19, for example, from June 15 to July 2, the cumulative number of additional positive cases of Covid-19 in Indonesia reached 309,391. Then in the period 3-20 July the number of positive cases of Covid-19 jumped 2.3 times to 721,120 cases. Furthermore, in the case of deaths of residents who died related to Covid-19, it was recorded that between June 15 and July 2, 6,418 people died. Meanwhile, in the 18-day period of Emergency PPKM, cases rose 2.5 times to 16,666 people who died. Will the price of CPO be immune to the issue while there are reports of quite high exports?'


WEEKLY ECONOMIC DATA & EVENTS CALENDAR

Date

Data/Events

Actual

Expectation

Previous

21-Jul

US –   Crude Oil Inventories

 -

-4.6M

-7.9M

Source: ICDX Research

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© 2020. Indonesia Commodity & Derivatives Exchange (ICDX)
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