CPO Prices Taking A Dip But No Cause For Alarm

By Nurul Hanis Izmir KUALA LUMPUR, Nov 22 (Bernama) – The dip in crude palm oil (CPO) prices to below the RM2,000 per tonne (US$1 = RM4.18) level has stirred some panic in the market and among traders, but it was deemed not alarming. The commodity’s price had recently lingered at the RM1,700-RM1,800 a tonne level, last reached five years ago, according to an industry veteran, M R Chandran, who is also a Director of the Incorporated Society of Planters (ISP) and the Executive Director of the Malaysian Palm Oil Association (MPOA). “This is the plantation life cycle. When you have a high production level that resulted in high supply and the demand is not there, (and this) coincided with consuming countries which have also increased production (and supply) in their own oil seed crop. “Basically, the commodity markets all around the world are going through a recession period, whereby the agriculture is having a good production and supply (situation), be it soybean, rapeseed, sunflower or oil palm,” he told Bernama. Chandran said China and India which used to be the world’s biggest consumers of palm oil are now buying less because their own crop production have been much better. China, for example, produces its own soybean oil, peanut oil and rapeseed oil, while India produces, among others, mustard seed, sesame seed oil and coconut oil. “But China is no longer the biggest consumer of our palm oil and we now welcome Indonesia, a home to 264 million population, as the major consumer of palm oil. “Although the country produces its own palm oil, the larger population has called for bigger demand and not only is the commodity used for food product, it is also utilised for non-food product including biodiesel, which the Indonesian government has pledged to implement the B20 rules in the automotive industry,” he said. The B20 consists of 20 per cent biodiesel and 80 per cent petroleum diesel, and since Sept 1, 2018, all vehicles and heavy machinery in the republic that have diesel engines need to use the diesel in a move to help the government save billions of dollars in diesel imports. Chandran said due to this, there was no doubt that by 2019, Indonesia could be the world’s biggest consumer of palm oil and India in second spot, worldwide. He noted that both Indonesia and India consumed 14 per cent each of Malaysia’s palm oil in 2017. Malaysia’s total export of palm oil and palm products stood at RM77 billion last year. “We can expect that this, together with the upcoming monsoon season that will come in December, will help cut down the stocks, hence pushing the price upwards. “I am optimistic that we could see the CPO price level to be trading at between RM2,300 and RM2,400 per tonne by February (2019) onwards,” he said. Overall, Chandran said the downtrend in the CPO price should not be a concern either to investors or the analysts, but acknowledged that some of the plantation companies’ share prices took a dip in the stock market. It could possibly be impacted by the speculative element, he explained. For example, Sime Darby Plantation’s shares fell from RM5.46 to RM5.18 over the last six months, FGV Holdings Bhd dipped from RM1.59 to RM1.18 over the last six months, while Kuala Lumpur Kepong slid from RM25.22 in January to RM24.92 in November this year. With vast experience in the agro-commodity industry, the veteran expressed hope that the government could come up with a long-term policy on labour to address the shortage of manpower in the plantation industry. He said companies were prepared to hire more foreign workers but their costs were rising, no thanks to the levy, minimum wage and operation cost. “Across the companies, big and small, Malaysia is facing a shortage of labour that causes lack of workers to harvest the crop and (thus) damaging the fruits. “Eighty-five per cent of our workers are foreigners and based on my estimate, we are losing close to between 17 and 18 per cent of our crop per annum. Basically, we are losing between one-and-a-half to two tonnes of fresh fruit bunches per hectare (ha) and our total oil palm plantation area is 5.8 million ha. “If we have more people to harvest the crop, it could help increase the yield and production and our cost would be lower, hence improving the margin,” he said. In the recent 2019 Budget tabling, Finance Minister Lim Guan Eng announced that the government would reduce the extension levy for foreign workers who have served for 10 years or more from RM10,000 to RM3,500 per worker per annum in the agriculture and plantation industries, due to a shortage of workers and decline in the prices of the commodities. -- BERNAMA