Wed, 12 Sep 2001

CPO prices to plummet in September-October period

JAKARTA (JP): The price of crude palm oil (CPO) on the international market is expected to dive further from now until October, mainly due to lower demand from India, the world's largest palm oil importer, an executive of the Association of Indonesian Palm Oil Exporters (GAPKI) said on Tuesday.

GAPKI chairman Derom Bangun said the price of CPO might plummet by 17 percent to as low as US$290 per ton during September to October, from $350 in August.

"India will be reducing their CPO imports as it stockpiled palm oil in July on fears of an anticipated shortage in domestic supplies. As a result of an import reduction, the prices are going to be under pressure now," Derom told The Jakarta Post.

India bought 2.03 million tons of palm oil from Malaysia and 1.6 million tons from Indonesia last year.

Traders said India bought 400,000 tons of palm oil in April, May and June and the amount could fall to 200,000 tons or even lower this month.

Derom said palm oil prices had dropped to $320 per ton in the first week of the month and have steadily weakened to $315 per ton this week.

"The prices will decline before they are expected to rebound in November or December," he said, adding that it was due to lower seasonal supplies.

Derom said palm oil prices had been under pressure in the January-to-June period of this year due to a market glut.

"The price even went as low as $235 during that period," he said.

The price bounced back significantly to between $370 and $400 per ton in July due to a higher demand from China and India and Malaysia's move to cut supplies.

Malaysia is the world's biggest exporter and producer of palm oil, accounting for half of the world's supply. Last year, Malaysia produced 10.8 million tons, of which nine million tons were sold abroad.

Derom said prices started sliding in August on the wake of the peak harvest season in Malaysia and Indonesia.

Derom said plunging demand from India might deal a heavy blow to Indonesia as the South Asian nation absorbed 40 percent of the country's CPO exports.

Aside from India, Indonesia sells palm oil to China. About 400,000 tons were sold to China last year.

Derom said earlier that the country's palm oil exports might fall short of the target of 4.2 million tons this year, partly due to the country's lower yield.

He projected this year's exports at 3.9 million tons, compared to 4.15 million tons last year.

"The fall in exports is due to an expected drop in production. The country's palm oil output may fall short of the target of 7.2 million tons this year because of security concerns and if the drought causing El Nino phenomenon reoccurs this year," he said.

Indonesia produced about 6.5 million tons of palm oil last year.

Meanwhile, in Kuala Lumpur, Malaysia's crude palm oil futures rebounded from early lows on Tuesday but failed to break the immediate resistance of 1,019, which indicated that the downside was intact, traders and analysts said.

At the close, the benchmark November futures contract ended up two ringgit at 1,014 ringgit ($266.84) a tonne on a technical rebound after trading as low as 989 ringgit, according to Reuters. (dmr)