Effect of falling palm oil prices

The prices of palm oil has been spiraling downward for the past months since March. And more bad news is that palm oil prices could fall by 46 percent next year due to oversupply and waning demand for biofuels, despite measures to cut production in Southeast Asia, a brokerage group has said.

Some economists suggested that the palm oil prices can be improved if demand for biofuels is up. That is easy said than done. The only supporter of biofuels especially in Malaysia is the government. However, their consumption is marginal and would not effect the demand and supply of palm oil.

The biggest consumers are the industries and private companies operating fleets of equipments and vehicles. Only if these parties including their counter-parts in the rest of the world, increase their usage of biofuels, then we will see the recovery of palm oil prices.

So, in the meanwhile, palm oil shareholders associated with FELDA or SALCRA may not see bonus for next year. What else can the government do to cushion the effect of falling palm oil prices to the low-income earners?

Your Ad Here

From StraitsTimes

Palm oil prices to plunge

KUALA LUMPUR - PALM oil prices could fall by 46 per cent next year due to oversupply and waning demand for biofuels, despite measures to cut production in Southeast Asia, a brokerage group has said.

CLSA Asia-Pacific Markets has slashed its forecast for palm oil prices by 46 per cent in 2009 and 32 per cent in 2010, from current levels of about 1,455 ringgit (S$612) per tonne.

In a report released last week, the brokerage said it expects the commodity to trade at 1,000 ringgit per tonne next year and 1,250 ringgit in 2010.

Prices of palm oil have plummeted by 68 per cent since a March high of 4,486 ringgit per tonne due to the financial crisis and the falling price of crude oil - which reduces demand for palm oil to supply the biodiesel industry.

Malaysia's palm oil inventory in October hit a record 2.1 million tonnes - a 14 per cent increase from the previous year - due to a production surge and a slowdown in exports to China and the Netherlands.

CLSA said that the inventory build-up is much worse in Indonesia.

'The biofuels story is waning, providing less demand support. We are also sceptical about effectiveness of government initiatives to boost CPO (crude palm oil) prices,' it said.

Malaysia and Indonesia, which account for 85 per cent of global palm oil output, plan to replant old trees and mandate biodiesel use to cut supply and bolster prices.

However, Buddhika Piyasena from Fitch Ratings was less gloomy, saying that prices had 'pretty much bottomed out' at current levels and that the risk of further losses was limited.

'We might see these levels continue in the 450 dollars per tonne range for a while,' Mr Piyasena told AFP, noting that both the world's top producers, Indonesia and Malaysia, are implementing measures to push up prices.

Deputy commodities minister Kohilan Pillay said Malaysia aims to fell some 200,000 hectares of old palm oil trees and all government vehicles will start using biofuel in the next few months.

The replanting scheme will involve trees of more than 25 years old as the yield from these trees is low at about 17 tonnes per hectare annually.

Smallholders will be given a 1,000 ringgit incentive by the government for each hectare replanted.

'A good price for CPO is at the 2,000 ringgit range and this is what we are aiming for,' he told AFP.

Fitch's Piyasena said that if the measures to mandate the use of biofuel in both countries are fully implemented, it could absorb up to 1.0 million tonnes of palm oil. -- AFP

---------------------------------

Business Times: Why palm oil price is falling

The plunge in palm oil futures prices is directly linked to falling soyabean prices, says Cargill Asia Pacific regional director

THE fall in the price of palm oil boils down to a question of supply and demand, futures traders and industry executives said.

They disagreed that the decline should be directly linked to the drop in crude oil prices, widely blamed for sparking a sell-down in commodity prices globally.

The price of palm oil traded in the futures market has been falling due to an oversupply of vegetable oils worldwide.

---------------------------------
Mongabay: Falling palm oil price makes palm biodiesel viable, may offer target for NGOs

Plunging palm oil prices are increasing its attractiveness as a biofuel feedstock and thereby helping buoy demand for the oilseed, reports Reuters.

With the feedstock accounting for as much as 80 percent of the cost of producing biodiesel, surging palm oil prices due to rising demand as an ingredient in food, consumer, and industrial products have undermined the economics of biodiesel production using the oilseed. Now that prices have fallen by about half since peaking in March at 4,486 Malaysian ringgit per metric ton, it is again profitable to produce biodiesel from palm oil.