Strong CPO Prices Will Not Be Long
17.08.2010 10:34 "Agro Perspectiva" (Kyiv) —
The current strong crude palm oil (CPO) price rally is not expected to last long, says a research house.
ECM Libra Investment Research says the price will see a retracement in coming weeks on factors such as negative export numbers or on the expectation that stock levels may rise by end of this month.
"We feel that prices will continue to be externally driven by soy prices which have been trending up despite there being no fundamental drivers.
«As such, we see the current price rally will likely see a retracement soon,» it said in its weekly review Monday
ECM Libra said CPO stock levels dropped three per cent in July and believed the levels have bottomed out by now.
Production will be on the rise from now and with August exports looking weak, it believed stock levels have a good chance of ticking up this month.
This would likely see CPO prices normalising in coming weeks, it said.
It said with Ramadan period arriving earlier this year, pre-stocking by Pakistan stepped up in July and offsetted 38 per cent month-on-month drop from China.
It said exports to India also increased significantly due to festive season pre-stocking.
As such, ECM Libra sees potential for exports to decline this month, as pre-stocking comes to a close (unless orders from China pick up).
For this year, ECM Libra said it will likely look to revising up slightly its CPO average selling price of RM2,400 per tonne to RM2,600.
Impact to target prices will be less than 10 per cent from this change, it said.
It said positive and negative events to be watched in the near term will be the La Nina phenomenon, by how much wheat prices are going to rise and drive up soy bean prices and decline in CPO exports in post-festive season pre-stocking.
La Nina is characterised by unusually cold ocean temperatures in the Equatorial Pacific compared to El Nino characterised by unusually warm ocean temperatures in the Equatorial Pacific.
ECM Libra said July production numbers were fairly strong, with a seven per cent month-on-month increase, compared with 2.5 per cent rise from May to June.
The general market expectation for July was weak production numbers (due to La Nina), but it turned out quite the opposite, it added.