PRICE MOVEMENT FROM JANUARY TO MAY

Benchmark and spot CPO futures contracts surge

The Star

Tuesday - May 05, 2009

by Hanim Adnan

The benchmark July crude palm oil (CPO) futures contract rallied to a nine-month high of above RM2,700 on Bursa Derivatives Exchange yesterday while the spot-month May contract jumped even higher to above RM2,800.

The July contract closed RM107 higher at RM2,702 a tonne while the June and May contracts rose RM121 each to RM2,755 and RM2,837 respectively.

A dealer said the market sentiment was 70% driven by fundamentals and 30% foreign interest.

Palm oil, a substitute for soyoil, closely tracked the sharp rally in soybean futures on the Chicago Board of Trade on Friday on fears over shrinking supply from major soybean producers like the United States and South America.

“I believe that the price discount between CPO and soybean will narrow further by 40% to 45%, given current developments,” the dealer said. CPO is traditionally traded at a US$100 to US$200 per tonne discount to soyoil.

On Bursa Malaysia, plantation stock IOI Corp Bhd closed 12 sen higher at RM4.42, its highest since Sept 26. Sime Darby Bhd rose 10 sen to RM6.70, Tradewinds Plantation Bhd put on 12 sen to RM1.87 and Hap Seng Plantations Bhd added eight sen to RM1.97.

Independent palm oil consultant MR Chandran told StarBiz that the RSPO-certified palm oil was fast attracting strong demand from the global food-based industry.

He said palm oil had proved to be a versatile “feedstock” for food, animal feed, oleochemicals and biofuel production.

“For CPO prices to trade at RM2,700 to RM2,800 per tonne, it clearly indicates the market has factored in reports of lower CPO production this year,” he said. “Malaysia will be hard pressed to achieve last year’s production of 17.9 million tonnes and will definitely miss the Malaysian Palm Oil Board’s 18.3 million target for 2009.”

The active oil palm replanting activities and reduced fertiliser usage due to the recent price hikes were taking a toll on local CPO production, Chandran said, adding that there were also fears over the shortage in other global oilseeds with palm oil being the most prominent.