Friday, January 18, 2013

Market Intelligence Crude Palm Oil 18th January, 2013

Market Intelligence

CPO closed with mild gains in domestic stop markets on rising demand. Fresh positions were created by speculators in futures market on the back of a firming trend in the domestic market and a pick up in demand mainly. The government enhanced import duty on Crude Edible Oils, while retaining the present import duty on all Refined Edible Oils. This has been done with the objective to shore up the price payable to farmers for Fresh Fruit Bunches of Oil Palm, which is linked to the landed price of CPO. With enhanced duty on CPO, price payable to farmers will increase by around Rs. 150 per MT. Impact of enhanced duty on prices of Edible Oils would be negligible at less than Rs. 1 per kg. The price may be further moderated on account of the huge stocks of Palm Oil in Malaysia and Indonesia, which may force these countries to lower the export duty currently levied in an effort to boost their exports. The CCEA also approved a plan to de freeze the tariff values of all Edible Oils including Palm Oil and notify their tariff values on the basis of their prevailing international prices. An alignment of notified tariff values with international prices will have a positive impact on the duty collected from import of Edible Oils and will provide an even field to the domestic refining industry.

In international markets CPO eased initially reacting to India's import duty structure on Crude Palm Oil imports, a move which is considered will hurt demand and leave stocks near record highs. However, prices recovered from lower levels on short covering by traders and speculators ahead of weekend. India, yesterday set a 2.5 % import duty on Crude Edible Oils to stem imports and protect domestic Oilseed growers. Some traders believe that the duty may be too small to really have an impact on Crude Palm Oil demand. The impact of higher duty was minimal in the local market as traders expect that Malaysia and Indonesia may be forced to lower export duty to clear stockpiles. Slightly better than expected economic data from China also acted as a positive cue and capped prices on downside. China's Q4 GDP growth data showed a 7.9% on-year rise vs expectations of 7.8% growth. Investors have shifted attention now to the South American weather pattern. Concerns over dry weather in major Soybean producer Argentina will likely support rival Palm Oil's prices.

Malaysia and Indonesia, are struggling with record stocks since September due to tepid global economic conditions and the euro zone crisis, which have stifled demand and caused prices to tumble in recent past. End stocks are expected to slowly shrink in the first quarter of this year on the back of seasonally slowing production, sluggish exports could crimp any recovery in prices. CPO prices in domestic markets are likely to decline in near term as demands from Indian refiners are probably going to decline. But the downside may not be significant because Palm Oil is still far cheaper than alternatives.

News for Use
At current prices Refined Palm products are offered $350-$370/ton cheaper than rival Soy Oil and a hefty $400/ton discount to Rapeseed Oil.

Events to Watch

January 1-20 export estimates by cargo surveyors Intertek Agri Services and SGS (Malaysia) Bhd. due on 21st January, 2013.

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