Market Intelligence Crude Palm Oil 15th February, 2013

In domestic market CPO nudged higher tracking firm global cues. Spot market demand also improved which supported the up trend. Traders however remained cautious as stockpiles are still high. India's veg oil imports increased drastically in January and this may pressurize prices in the log run. Palm Oil prices are also supported by its discount to Soy Oil which boosted demand.

CPO edged higher in the opening trade in international market supported by improving export demand in the first 15 days of February. The numbers suggest that Malaysia's new export tax structure has helped to boost shipments as Malaysian exporters enjoy tax advantage over Indonesia. Cargo surveyors said exports surged mainly due to an up tick in outbound sales to major Palm Oil buyers, China and the European Union.

Prices eased from elevated levels in futures market soon after Malaysia's announcement came that it will raise export taxes on Crude Palm Oil shipments in March. In a circular issued on Friday Malaysia reported that it will set CPO export duties at 4.5% in March after two consecutive months of no duties that boosted crude shipments from Malaysia and helped to ease stockpiles. Crude Palm Oil witnessed a slight uptrend this year after falling heavily last year amid speculation that holdings will drop as exports gain and supply shrinks.

Malaysia's CPO exports in March are likely to be much lower due to higher tax rate and Indian importers have bought quite a fair bit in January. Palm oil port stocks at Indian ports are also filing up and therefore buying may slow down soon. But at the same time buying from China may start buying again from next week after markets open after long new year holidays.

Palm Oil shipments from Indonesia, may decline to the lowest level in four months in February as more buyers turn to Malaysia after it extended duty free shipments to clear record stockpiles. Indonesia will release its estimate for January exports at the end of this month, and follow with the February export tax figure of 9 % in March.

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Robobank expects CPO futures to find support above MYR 2,400/ton for the remaining time in 1st quarter to encourage demand. They also said that current low prices will continue to stimulate export demand and draw down inventories supporting prices. The bank forecasts CPO prices to average MYR 2,700/ton in the second quarter of 2013, 12.5% from its projection for 1Q 2013.