Thursday, 7 March 2013

Plantation Sector - Key Takeaways from Palm Oil Conference Day 2 OVERWEIGHT

- Topics on the second day of Palm Oil Conference 2013 were mainly in respect of the price outlook for CPO. James Fry said CPO price would rise to RM2,625/tonne by mid-year as palm oil inventory in Malaysia declines to a range of 1.8mil to 1.9mil tonnes.

- On the other hand, Dorab Mistry was bearish. He believes that CPO price would increase to range of RM2,300/tonne to RM2,500/tonne by end-April 2013. From May until July, CPO price would fall to RM2,200/tonne and below. From July onwards, Dorab expects CPO price to slide further to RM1,800/tonne.

- James Fry believes that biodiesel would support demand for palm oil. There is a floor price and trading band to CPO due to the energy factor.

- At current price levels, it is feasible for petroleum companies to produce biodiesel from palm oil as there is not much difference between the cost of producing diesel and biodiesel. The premium between palm and Brent crude oil is close to zero presently compared with the six-year average premium of about US$280/tonne to US$290/tonne.

- Although the European Union is expected to impose anti-dumping duties on biodiesel by mid-year, USA has reintroduced the tax credit of US$1.00/gallon or US$300/tonne for biodiesel.

- The Chairman of Indonesian Palm Oil Board estimates ending inventory of palm oil in Indonesia at 2.3mil tonnes in 2013F. This is on the back of domestic consumption of 9.2mil tonnes, exports of 19mil tonnes and production of 28mil tonnes for 2013F.

- However, these estimates were refuted by Dorab Mistry, who said that Indonesia’s palm oil inventory would end at five million tonnes by year-end. Dorab predicts that palm oil production in Indonesia would reach 31.5mil tonnes in 2013F.

- He believes that the rising production of crude oil in the US would exert pressure on crude oil prices, reducing the attractiveness of biodiesel. CPO prices are also expected to ease from July onwards due to the expansion in soybean production coming out from South America, which would lower soybean prices.

- Dorab thinks that the Indian Government would increase import duty on CPO from 2.5% to 10% by end-May and 20% by August or September 2013. He expects the import tariff on refined palm oil to rise from 7.5% to 17.5% by end-May and to 27.5% by August or September.

Source: AmeSecurities

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