KUALA LUMPUR (March 8): Crude palm oil (CPO) futures extended their gains today on the back of higher crude oil and soybean oil futures prices.

The benchmark third-month CPO contract finished RM129 or 3.32% higher at RM4,018 a tonne, according to Bloomberg.

This is the third time this year that the price had breached the RM4,000 mark. It rose to RM4,017 on Jan 6, and subsequently hit RM4,034 on Feb 25.

The all-time high price for CPO futures is RM4,321, registered in March 2008, based on available data on Bloomberg.

CPO prices which had been on an uptrend, pulled back between Feb 25 and March 2. On March 2, the contract settled at RM3,816, down RM218 or 5.40% from the Feb 25 close of RM4,034.

However, the commodity resumed its rally over the last four trading days.

So far this year, CPO prices are up 3.26% or RM127, from RM3,891 per tonne on Dec 31, 2020.

Meanwhile, year-on-year, prices are up 70.83% or RM1,666  from RM2,352 per tonne recorded on March 9, 2020.

Spot prices for CPO have also mirrored the performance of the third-month CPO contract following March 2. According to the latest data made available by the Malaysian Palm Oil Board, spot CPO prices stood at RM3,935 a tonne as of March 5.

In a note today, CGS-CIMB Futures said the recent advance in CPO futures has been based on expectations of a pickup in demand, with overnight gains in soybean oil and stronger petroleum prices boosting CPO’s appeal for use in food and biofuels. The research house noted that the market view was that palm oil exports may rise in March, due to forward purchases for Ramadan. 

Reuters reported that oil prices were at their highest levels in more than a year, after Yemen’s Houthi forces fired drones and missiles at the heart of Saudi Arabia’s oil industry on Sunday (March 7), raising concerns about production.

"Prices had already been supported by a decision by OPEC and its allies not to increase supply in April. Brent climbed 1.1% to US$70.14 a barrel, while US crude rose 1% to US$66.8 per barrel," Reuters reported. 

CGS-CIMB Research’s Ivy Ng and Nagulan Ravi estimated in a note last week that Malaysia’s palm oil inventory probably grew 7.6% month-on-month (m-o-m), but declined 16.2% (y-o-y) to 1.43 million tonnes at end-February.

“This is a deviation from the historical trend whereby palm oil stocks typically declined in February at an average of 3% m-o-m over the past 10 years. This could be due to demand rationing by consumers and shift in palm oil sourcing from Indonesia, due to the latter’s improving output. Also, Malaysia’s February palm oil stock level has averaged 2.0 million tonnes in the past 10 years. Official figures will be released on March 10 (Wednesday),” they noted.

The duo estimated that palm oil exports fell 6% m-o-m and 18% y-o-y in February to 890,000 tonnes due to the high selling prices for CPO and tight supply in Malaysia. Data from cargo surveyor SGS has revealed weaker exports to China and the US, they added. They also noted that the increase in India’s effective import duties on CPO could also have affected demand appetite for palm oil.

Average CPO prices rose 4% m-o-m and 44% y-o- y to RM3,897 a tonne in February, on concerns over low inventory levels of palm oil and global edible oils supplies.

“We project CPO prices to trade at RM3,200-3,700/tonne in March 2021F, amid low inventory in Malaysia, which will take time to rebuild. We expect palm oil supply to recover in 2Q21F, as weather conditions normalise. We maintain our average CPO price forecast of RM2,900/RM2,700 per tonne for 2021F/2022F and our neutral call on the sector,” they said.