Inventory levels and weather to determine future movement
PETALING
JAYA: Inventory levels and the La Nina weather patterns will determine
the price of palm oil, which hit a 30-month high yesterday.
Crude
palm oil (CPO) for February delivery rose RM89 to close at RM3,722
yesterday. Analysts expect prices to be firm over the next few months on
sustained demand due to end-year festivities and the coming Chinese New
Year holidays despite Malaysian plantations going into a production
down-cycle after hitting a peak in October.
The market is still focused on concerns over supply, which is still a bit tight, an analyst with a local investment bank told StarBiz.
Inventory in November, which stood at 1.63 million tonnes, was 15.4%
lower than a year ago. He said wetter weather conditions going into the
first quarter of 2011 as a result of the La Nina weather patterns could
still affect the planting season and therefore prices going forward.
I still think CPO prices will hover around the RM3,000 to RM3,500 levels by the middle of next year, the analyst said.
Analysts expect CPO prices to be firm over the next few months on sustained demand due to end-year festivities. — Reuters According
to the Malaysian Palm Oil Board, CPO production in November, at 1.45
million tonnes, was 8.6% lower than a year ago and 10.8% down from
October, where there was a recovery despite the weather conditions,
while year-to-date, it was 1.8% weaker than last year.
While
exports registered a slight 0.1% decline from a year ago, it recovered
on a month-on-month basis and year-to-date, was up 4.8% compared to the
same period last year.
Another local analyst said it was
anybody’s guess what the weather conditions would be like six months
down the road but the current weather conditions were not normal.
It’s
not normal to see the flooding that we’ve seen in the northern part of
the peninsula or the extreme cold conditions in Europe, she said, adding
that inventories would depend on demand and the weather.
OSK Research Sdn Bhd analyst Alvin Tai said in a report that the November data was the worst November performance since 2005.
While
investors should watch out for softening prices starting from mid-2011,
we do not think there is any urgency to underweight the sector at this
point in time as palm oil price should remain relatively firm given that
the supply tightness will persist in the next few months, he said.
Tai
maintained the house’s average CPO price expectation of RM2,700 per
tonne for next year on expectations of a potential bumper harvest in the
second-half while for 2010, the CPO price was on track to hit an
average price of RM2,700.
