POINTERS: CPO Price Trend and Market Challenges in 2020

By: Dr. Sathia Varqa

Dr. Sathia Varqa is the owner and co-founder of Palm Oil Analytics (POA), an online publisher of palm oil daily news, price, data and analysis based in Singapore, serving global commodity markets.

POA publishes two daily reports a day covering price assessments analysis of key data and market commentary.

Sathia previously worked for S&P Global Platts, a division of S&P Global (previously McGraw-Hill Finance) based in Singapore.

He holds a BA (Business Studies), Master degree in International Trade (Distinction) and a PhD in political economy from The Robert Gordon University, Aberdeen, Scotland, UK

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CPO prices been on a meteoric rise in the final quarter of 2019 underpinned by lower output against higher export demand and on prospect of higher biodiesel commitments. Higher biodiesel commitments in the 3 key palm producing countries Indonesia, Malaysia and Thailand increasing to B30, B20 and B10 respectively was a catalyst for higher prices in the last quarter of 2019. Bullish price outlook fuelled by a mix of fundamentals and sentiments lifted the benchmark CPO Futures by 41% or US$ 214 from the start of October to the end of December while notching a peak of RM 3092 or US$ 747/ton to 3 years high prices. The big question is how long can this high price scenario be sustained? What are main market challenges in 2020? CPO prices have since seen some correction in January to trend below RM 3000/ton. Will prices rebound again to RM 3000/ton? In this presentation we look at the main CPO price drivers in 2019 and offer an outlook on supply and demand scenario in 2020 mainly with reference to biodiesel, India and China. We also look at the laurics supply and demand situation and forecast the price outlook for 2020.

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Questions & Answers (5) :

Anthony Yap

4 years ago

Current PoGo about USD100-110/mt; how much subsidies needed for Malaysia to implement B20 and B30 as per your slide Page 15? Is Indonesia currently Levy collection structured sufficient for them to implement B30 or B40 implementation?

Sathia Varqa:
Dear Anthony, As POGO spread of US$ 100. The subsidy required is US$ 190-200 million for B20. Indonesia current levy collection is sufficient for B30. For B40 it should be sufficient if the government sticks to the funding framework in place.
4 years ago

MEGAT SYAZWAN SHAH

4 years ago

Is it still possible for Malaysia to have positive grow in 2020 based on tge recent political turmoil and Coronavirus issue?

Sathia Varqa:
Dear Megat, Do you mean positive CPO growth or economic growth? CPO growth - yes but a very small increase to 20 mil tons in 2020 from 19.98 mi in 2019. Economic growth - Q4 2019 recorded smallest rise in a decade. Q1 2020 is likely to show slower pace of growth
4 years ago

MEGAT SYAZWAN SHAH:
Thank you
4 years ago

Akmal

4 years ago

Dr, you claim that government tweak the tax to influence CPO price to win market share. Does the graph you display show that it can influence the price level? Does this tweak influence CPO price? What is the significance of Paraquay soybean production in the soybean?

Sathia Varqa:
Dear Akmal, The chart does not show cause and effect. The descriptive chart shows the price reaction between the 2 countries when taxes are tweaked over a time series. Paraguay is one of the world's 4 largest producers and exporter of soybeans
4 years ago

MOHD RAFIZAN BIN SAMIAN

4 years ago

In your opinion, is there any other way the government can do to win a market share during low price seasons other than tweaking the taxes?

Sathia Varqa:
Dear Mohd Rafizan, The government can win market share in several ways. 1) enter into a bilateral agreement by giving preferential tariffs or discounts 2) focus on downstream sector in the destination countries 3)do more outreach to countries that use soft oils. These are just some.
4 years ago

FENCY

4 years ago

Dr Sathia Varqa, allow me to discuss on these matters: 1. Market Challenges to become Opportunities: : Latest viral attack prompting palm oil producers on designing drugs that are derived from lauric acid to combat the development of the virus 2. Lauric acid is derived from CPKO, and CPKO price would be effected to such level aligning with significant R&D progress on antiviral activity (pharmaceutical)

Sathia Varqa:
Dear Fency, Thank you for your comments. Possible vaccines and some specific drug treatments are under investigation. They are being tested through clinical trials. WHO is coordinating efforts to develop vaccines and medicines to prevent and treat COVID-19. (source: WHO)
4 years ago