Demand
destruction will start if crude palm oil (CPO) prices get excessively
high, say research houses, OSK Research and ECM Libra.
Currently, the CPO price is hovering at RM3,000 per tonne.
OSK Research said palm oil supply would remain tight in the first half of 2011 and this would keep the prices relatively firm.
ECM Libra Investment Research said the CPO price rally could continue into early next year.
OSK said the upside was expected to be limited to between RM3,300 and
RM3,500 per tonne, while ECM Libra said if the CPO price reach RM4,000
per tonne, a pullback in demand could happen.
The scenario was seen in 2008 when high CPO prices were counter
productive to demand and as a result, stock levels ballooned to an
all-time high of almost 2.3 million tonne, triggering a decline in the
prices.
OSK has raised its CPO price projection to RM2,700 per tonne for
this year and next year respectively, from an earlier estimate of
RM2,500 per tonne.
Among the driving factors were weak Malaysian production and strong
exports, shortage in the soyabean market due to strong demand by China,
and unfavourable weather affecting South American soyabean planting, it
said.
It said CPO prices should ease back if only based on strong fourth quarter production and slower export demand.
“However the prices were supported by firm soyabean prices.
“CPO price has been rallying not on its own fundamentals but on the
strength in soyabean, which is facing prospects of a production
shortfall in Brazil, one of the key producers,” it said.
Malaysia’s palm oil production rose 4.7 per cent in October to 1.637
million tonnes after slower harvest in September due to the Muslim
fasting month.
Year-to-date, production totalled 14.302 million tonnes, one per cent lower than last year’s.
Exports in October declined 0.6 per cent compared to September.
China, the largest palm oil export destination for Malaysia, reduced
its purchases by 41,400 tonnes while India cut down its imports by
34,600 tonnes.
Year-to-date, exports totalled 13.852 million tonnes, which were 5.4 per cent higher than a year earlier.
However, combined with Indonesia, exports up to September only increased by 1.6 per cent. — BERNAMA
