Malaysia’s CPO faces several major challenges in 2018 – BorneoPost Online | Borneo , Malaysia, Sarawak Daily News

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Malaysia’s CPO faces several major challenges in 2018 – BorneoPost Online | Borneo , Malaysia, Sarawak Daily News

MALAYSIA palm oil price is on a downwards trend since the end of last year until today. A few factors like the stronger ringgit, low demand, and high stockpiles have pulled down prices on the futures market.

The latest numbers by both cargo surveyors SGS and ITS reported that exports data for CPO from January 1 to 31. ITS reported exports declined 9.3 per cent from 1.422 million to 1.29 million while SGS declared that exports declined 8.81 oer cent to 1.322 million from 1.439 million.

However, Malaysia’s Government’s decided to suspend export taxes on CPO for three months, starting January 8, 2018, to spur prices and reduce the inventories of palm oil in the country. Nevertheless, this alternative has not done much to deter falling prices.

This short term action is to assist the small-scale farmers in order to make them survive amidst this hardship. While Malaysia’s Government had tried to create some hope to stimulate market sentiments for CPO, but seemed ineffective.

Malaysia and Indonesia are also currently worried about the European Parliament’s decision to ban the use of the commodity in motor fuels.

This ban is expected to commence on 2021. The ban was also put in place in an effort to forbid deforestation and to meet Europe’s more ambitious climate goals. Exports of biofuel to the European market remains one of the main key source of income for Malaysia due to the fact that the EU is Malaysia’s second-biggest export market for palm oil, which is mainly for energy usage.

Palm oil can be a substitute product for crude oil. The anti-palm oil campaign will trigger the apprehension within the palm oil market as exporters worry about the possibility of low demand of palm oil. Plantation Industries and Commodities Minister Datuk Seri Mah Siew Keong hope that the Asean region will be able to make a collective deportment to stand up against the decision made by the EU to eliminate palm oil from its biofuel programme by 2020.

Another factor which caused the price of CPO keep falling is our home currency (the ringgit). On January 25, 2018, Malaysia’s central bank had announced  an increase in key interest rates from three per cent to 3.25 per cent (an increase of 25bps). This move was to slow down inflation and keep the economic growth on track.

The stronger ringgit caused palm oil to be more expensive and this will reduce buying power for all the importers from other nations.

Another key factor that is pressuring the price of palm oil is stockpiles. The high inventory level and weak demand will keep palm oil prices down for Malaysia. The price slumped since the start of November 2017. Based on reports from MPOC, the inventories for January in 2016 is 2.309 million, 1.541 million for January 2017, and 2.548 million for January 2018. The high palm oil inventory causes producers to spend more on maintaining the quality of their palm oil stocks. This will not only increase their expenditure but also lower their revenue due to low demand.

In short, currently, Malaysia’s palm oil industry faces several key challenges.

The sector needs positive catalysts to boost its prices. Many of industry players and analysts predict that the average price of CPO in 2018 will range within RM2,400 to RM2, 800 per tonne.

Currently, what we hope in the midterm is for both Indonesia and Malaysia to persuade the anti-palm oil rhetoric to change their perceptions and ultimately their decision on palm oil usage in the region.

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