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KUALA LUMPUR, July 22 -- Palm oil industry may see a full recovery in the fourth quarter of this year if COVID-19 pandemic is manageable and contained, Council of Palm Oil Producing Countries (CPOPC) said.
The council also believed that there is a possibility of a rebound in the market given the ultra-loose monetary policies of many central bankers and the government’s stimulus package.
“CPOPC remains optimistic that palm oil is heading for a price recovery in the second half of 2020 due to improving global consumption and dwindling production after COVID-19 outbreak,” it said in a statement today.
The Malaysia Palm Oil Council predicted the crude palm oil (CPO) prices to hit RM2,594 per tonne in the second half of 2020 and averaging at RM2,337 for the year.
It said the gradual opening up of major markets post COVID-19 starting from June 2020 is also expected to make the price outlook bullish.
Palm oil is a daily item needed for the production of food and toiletries.
Countries will begin importing and stocking up their supplies, notably by China and India.
According to the council, a push to use more palm oil in biofuels particularly by Indonesia will augur well for lowering the stocks and increasing the price of the commodity. An attractive CPO price discount against other edible oils is another plus factor.
As for production from the two of the world’s largest palm oil producer, Indonesia and Malaysia, it said the output is expected to be lower this year due to last year's dry weather and lower fertilizer application and current lower labour supply.
The potential of La Nina in the second half of the year would also dampen any prospects of increased production.
Indonesia's CPO production in 2020 is forecast to be lower by one to two million tonnes than last year's 44 million tonnes due to dry weather and less fertilizer usage.
The relentless pressure from non-government organisations to stop oil palm planting, as well as the slowdown in new planting due to low prices up to 2019 and on-going moratorium policy, will inevitably keep Indonesia's production growth low.
As for Malaysia, its output may drop 4.3 per cent to 19 million tonnes due to biological stress on trees and limited labour supply.
The government has recently imposed a hiring freeze for new foreign workers to which the sector relies on. The shortage of workers has been worsened by the imposition of the Movement Control Order to stop the spread of COVID-19
A major concern for the industry in the second half of the year is the peak production season constituting about 60 per cent of the yearly CPO production, CPOPC said.
On the demand for the commodity, it is poised to recover thanks to the easing of COVID-19 lockdowns across the globe and as well as major consumers such as China and India returning to the market boosting purchases to replenish dwindling stocks.
Considerable demand will also be underpinned by the implementation of biodiesel blending mandates in major palm oil-producing countries.
“Although global biodiesel demand may suffer post-COVID-19 as movements are restricted, the commitment of major palm oil-producing countries to maintain the biodiesel policy, especially for Indonesia with B30 mandate until Dec 2020, is still fundamental to increasing domestic consumption of CPO.
“The policy will divert biodiesel into the domestic market and help increase CPO prices. There remain many uncertainties, however, particularly on the length and magnitude of below normal fuel consumption,” it said.
The council said, moreover, Indonesia may implement B40 in 2021 adding to the positive sentiment towards palm oil price in 2020.
It is also noteworthy to underscore the increase of oleochemical demand both for local consumption and export.
“The industry needs more palm oil to produce hand sanitizers and soaps, thanks to COVID-19 outbreak. Such demand is likely to sustain until the end of the year as COVID-19 protocol remains being implemented across the globe,” CPOPC added.
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