POINTERS 2014 MPOC
Palm Oil Internet Seminar
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Mapping The Palm Oil Price - 2013 Market Perspective:
Crude Palm Oil - A Fat Tail Event in Southeast Asia
By: Mr. Abah Ofon

Abah has over 21 years’ macroeconomic, commodities, trade and research experience in financial markets in Africa, Asia, the Middle East and Europe. Prior to founding 3XG UK CONSULTING LTD, he was lead analyst at the London firm Agribriefing, Head of agri-commodity research and Africa economist for Standard Chartered Bank’s global franchise based in London, Dubai and Singapore. Abah has provided advisory services on agricultural markets to some of the largest agribusiness names and institutional clients including hedge funds and central banks. Abah is a prominent pundit in the financial and business media and was profiled in the UK’s Financial Times at the height of the 2008 commodity crisis. Abah is a graduate of the London School of Economics and has been a member of UK Society of Business Economists as well as a Financial Advisor licensed by the Monetary Authority of Singapore.
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In recent weeks, we met with crude palm oil (CPO) traders, producers and consumers in Southeast Asia. The focus of our conversations was the outlook for CPO prices. The CPO market started 2013 in much the same vein as it ended 2012, stuck in a range between MYR 2,250 and MYR 2,500/tonne (t). Contrary to our expectations, the market did not rally beyond MYR 2500/t for most of January, although more recent price action is increasingly bullish, partly due to a weaker Malaysian ringgit (MYR). Since Q4-2012, the market has been depressed by huge inventories in Southeast Asia, limited storage capacity and a surplus of other oilseeds in the 2011/12 season

In this report, we revisit the themes that shaped our view of the market in 2012, and discuss emerging dynamics in the industry that lead us to new conclusions. On the whole, we remain positive on the outlook for CPO prices in 2013, although we now expect the seasonal low to be in Q2-2013 rather than in Q1-2013. We continue to expect the market to peak in Q4-2013. We expect macroeconomic developments in Asia to support CPO demand, but we acknowledge that large stockpiles will continue to limit the potential for a sustained market rally.


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Questions & Answers (12) :
Rao Achutuni
7 years ago
Dear Mr. Ofon, 2010 and 2011 were back-to-back La Nina years that lowered production in both Malaysia and Indonesia, but for that the production would have been quite high as well. The economic slow down in the EU-27 has lowered the demand threshold for all commodities (palm oil, cocoa, coffee etc). The forecast for the EU is more of the same in 2013, with recovery possibly by 2014. Do you envision an upward price mobility in the second half of 2013? The latest SST anomalies seem to be once again in the negative territory but above the -0.5C threshod. Rao Achutuni, EGSI Consulting
Mohammad Jaaffar Ahmad
7 years ago
Dear Mr. Ofon, China Standard on Palm Oil (GB 15680-2009) is available upon request from MPOB. I am from The Palm Oil Refiners Association of Malaysia (PORAM) and our views are we have great concern on the 'landed quality' requirements of Chinese Authority (AQSIQ). As an ociation, we have consulted both MPOB and MPIC for a solution to move forward. We hope both countries could find a win-win solution to continue on our strong bilateral trade relationship. TQ
Abah Ofon
7 years ago
Many thanks for shedding light on this matter. Can I request that you forward the details of China's new PPO specification if you have this to hand? Being an expert in this field, can I also ask what your views are on how it will impact the industry going forward?
Mohammad Jaaffar Ahmad
7 years ago
Dear Mr. Ofon, thank you for your answers. This is to kindly share with all that according to Codex Standard (Codex Stan 210-1999) the amount of stearic acid in palm oil is 3.5-6.0%. Even after refining/fractionation into palm olein, the level of stearic acid remains between 3.5-5.0%. All fatty acid compositions including stearic acid is the ideny characteristics of palm oil. Palm oil cannot be authenticated as palm oil if the level of stearic acid is below 2%. Simply put, you cannot change the DNA of palm oil and still call them palm oil. Fortunately, there is no mentioned on the level of stearic acid specification in China Standard on Palm Oil. Hope this will give some clarity to the industry. TQ
Abah Ofon
7 years ago
Dear Mr Ahmad, thank you for your questions. On whether China will become like India, it is my view that this is now an industry in full transition and key stakeholders will do what it takes to maintain a compeive edge. At the moment the economics are in favour of India refining CPO, particularly because the capacity already exists. Like I mentioned in the report, China has traditionally been known as a PPO importer but it will be unwise to rule out the possibility of a gradual build up in crude refining capacity, particularly from some of the major players, if it makes economic sense for the domestic market. Furthermore, and as you rightly alluded to, the changes to policy might actually help move the decision making process along. I do not have data on China’s CPO refining capacity. With regard to China’s imports of CPO, for purposes of simplicity, I group crude CPO and Processed CPO as CPO. Hope that clarifies. So the main exporters are indeed Indonesia and Malaysia. Yes China’s new policy requires lower values of stearic acid and peroxide. Refined palm oil has more stearic acid levels compared with some other vegetable oils. Stearic acid is a fatty acid which is a good thickener and emulsion stabiliser for lotions and creams. CPO has a content of around 4.3-4.7% stearic acid. My understanding is that levels above 3% result in soaping. Discussions I have had with traders in the market suggest China would like to see a level of stearic acid below 2%. I can also confirm that your analysis is correct regarding Chinese quality requirements for PPO as opposed to CPO.
Mohammad Jaaffar Ahmad
7 years ago
Dear Mr. Ofon, China (CIQ) Rules for palm oil import effective 1st January 2013 is very clear. All palm oil import will be checked against China Standard on Palm Oil (GB 15680-2009). Essentially China is requesting 'landed quality' specifications. Would you think that China will eventually become like India having their own domestic palm oil refining industry (if it has not done now)? TQ
Mohammad Jaaffar Ahmad
7 years ago
Dear Mr. Ofon, China (CIQ) Rules for palm oil import effective 1st January 2013 is very clear. All palm oil import will be checked against China Standard on Palm Oil (GB 15680-2009). Essentially China is requesting 'landed quality' specifications. Would you think that China will eventually become like India having their own domestic palm oil refining industry (if it has not done now)? TQ
Mohammad Jaaffar Ahmad
7 years ago
Dear Mr. Ofon, you mentioned that Indonesia accounted for around 45% of China's CPO import in 2012, up from 35% in 2011. Who are the other suppliers of CPO to China? MPOB figures does not show that Malaysia is exporting a significant volume of CPO to China except PPO. Any idea on how much the palm oil refining capacity in China now? TQ
Mohammad Jaaffar Ahmad
7 years ago
Dear Mr. Ofon, I am not aware about the requirement of refined palm oil (for edible purposes) to have less stearic acid. What is the level of stearic acid required to meet Chinese Palm Oil Standard? What is the significant reason of having a low level of stearic acid in palm oil? TQ
Mohammad Jaaffar Ahmad
7 years ago
Dear Mr. Ofon, as I understand, the Chinese (CIQ) quality requirements are more for Processed Palm Oil (PPO) rather than CPO import. CPO import is not an issue here because it will need a refining process anyway in China and will definitely meet all the Chinese quality requirements (for edible purposes). Could you confirm on this? TQ
Mohammad Jaaffar Ahmad
7 years ago
Dear Mr. Ofon, I am interested in China market and have a series of questions. In your analysis on China market, you mentioned that 'China was still an avid buyer of CPO in 2012; customs data show that it imported 6.34 million tonnes in that year'. However, according to China Administration of Custom, in 2012 (Jan-Nov), only 33,000 tonnes of CPO was imported compared to 4.37 million tonnes of RBD Palm Olein. Could you clarify whether China is a major importer of CPO or Processed Palm Oil (notably RBD Palm Olein)? TQ
Mohammad Jaaffar Ahmad
7 years ago
Dear Mr. Ofon, I am interested in China market and have a series of questions. In your analysis on China market, you mentioned that 'China was still an avid buyer of CPO in 2012; customs data show that it imported 6.34 million tonnes in that year'. However, according to China Administration of Custom, in 2012 (Jan-Nov), only 33,000 tonnes of CPO was imported compared to 4.37 million tonnes of RBD Palm Olein. Could you clarify whether China is a major importer of CPO or Processed Palm Oil (notably RBD Palm Olein)? TQ
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