CPO prices to drop ahead of Chinese New Year

CPO prices to drop ahead of Chinese New Year

Zakki P. Hakim, The Jakarta Post/Jakarta

Ahead of lunar new year festivities, industries in China are
reducing their activity, and this will eventually cut demand for
certain raw materials including crude palm oil (CPO), thus
weighing down on the commodity price.

Combined with a possible revaluation of the Malaysian currency
and the northern hemisphere winter, reduced production activity
in China may put more pressure on CPO prices that have already
been in decline for some months.

Industry players now expect the CPO futures contract price to
fall as low as 1,230 ringgit per ton (Rp 2,946 per kg) at the
Malaysian Derivatives Exchange, where the global price is
benchmarked, although they forecasted a rebound at the beginning
of the second quarter.

"People in China usually observe the lunar new year for about
a month. At least a week before and a week after (lunar new
year), workers will take days off. Moreover, it is winter now, so
naturally there is less activity," PT Lampung Interpertiwi's
general manager Sukatono said on Thursday.

"The weakening U.S. dollar may also trigger a revaluation of
the ringgit, adjusting upwards by an estimated 5 percent to 10
percent," Gabriela Gan, vice president of Malaysian trading firm
TA Futures Sdn. Bhd. said.

She was speaking during Palm Oil Conference 2005: "Uses of CPO
futures in trading, risk management, hedging and price forecast"
in Jakarta.

A stronger Malaysian currency would make the purchase of
ringgit-denominated CPO futures more expensive -- thus making the
commodity less attractive -- as the product is sold in U.S.
dollars on international markets.

Moreover, Gan predicted that production of soybean, a main
substitute commodity for palm oil, was estimated to increase by
22 percent, making it easier for customers to find soybean than
palm oil.

Gan calculated that soybean usage would increase to 29.8
percent of the existing stock from last year's 21.5 percent.

After Malaysia, Indonesia is the world's second largest
exporter of palm oil, a raw material for, among other things,
cooking oil, soap and detergent.

Output from the two countries is expected to make up about 85
percent of this year's global palm oil production.

Separately, Indonesian Palm Oil Producers Association (Gapki)
chairman Derom Bangun said the country was expected to produce
11.6 million tons of palm oil this year, compared to last year's
estimated 10.8 million tons.

Exports were projected to reach 7.8 million tons, up from last
year's estimated 7 million tons, he said.

China and India are Indonesia's main CPO markets. Indonesia
also exports to Pakistan, Bangladesh, the Netherlands and into
new markets such as eastern Europe.

Mid last year, the price of CPO was quite high. At one point
it reached 2,005 ringgit per ton, which was the highest level
since January 1999.