Fluctuation of Palm Oil Prices Due to the Second Wave of Covid
Since the second half (H2) of 2020, the price of palm oil (CPO) has continued to increase as indicated by the CIFF Rotterdam price of CPO was reached USD 954 per ton in December 2020. This is a blessing felt by palm oil producers, both companies and smallholder oil palm farmers in the amid of the pandemic. Even, smallholder farmers have also enjoyed a higher FFB price ranging from IDR 1,500-2,000 per kilogram.
The high CPO prices trend also continues in the first quarter of 2021. This is indicated by the CIFF Rotterdam price of CPO in March 2021 reached USD 1,116 per ton. Not only that, the closing price of CPO for August delivery contracts on May 12, 2021 in the Bursa Malaysia Derivative reached RM 4.506 per ton. This price is the highest level in the last decade.
However, the fluctuation of CPO prices on the Bursa Malaysia Derivative reoccured with an extreme downward trend to RM 3,890 per ton on May 24, 2021. One of the causes of this decline in CPO prices was the spike in the number of covid-19 cases in the second wave that hit various Asian countries, where these countries play an important role in the global palm oil market.
India as the largest palm oil importer in the world, is currently dealing with the second wave of Covid-19 which is much more severe than the first wave. Update as of May 27, 2021, India is currently the global epicenter of the coronavirus pandemic with the number of Covid-19 cases more than 27 million cases with additional cases per day reaching more than 52 thousand cases. The emergency status in India and implementation of lockdown policy is also still being extended until May 31, 2021.
Not only India, Malaysia, which is also the second-largest producer and exporter of palm oil in the world, is also facing a spike in the number of Covid-19 cases has reached 7 thousand cases per day. This made this Malaysian Government enforce a lockdown policy until June 7, 2021.
The restrictions on social and economic activities in public areas including the hotel, restaurant, and catering (Horeca) sector in the lockdown policy that are implemented in India and Malaysia have a significant impact on palm oil demand because this sector absorbs large demand for palm oil. The decline in demand is one of the factors that has caused the decline in CPO prices on the Bursa Malaysia Derivative, considering that they are the top players in the global palm oil market.
The decline in the CPO’s contract price has also become a negative sentiment, which directly affected the shares of palm oil companies that are under threat in the red zone, for example are SGRO (-2.58%) and SSMS (-1.12%).
CPO contract price fluctuations for delivery in August 2021 with a positive trend occurred again. The closing of the Bursa Malaysia Derivative on May 25, 2021, shows the CPO price has reached RM 3,898 per ton. Even though the CPO price level has not yet reached RM 4,000 per ton, this price increase is expected to boosting optimism in the palm oil industry.
Several driving factors of the increase in CPO prices were the increase in crude oil prices in the last few days where the price of Brent was approaching USD 70 per barrel. Apart from fossil oil, soybean oil on the Chicago Board of Trade also increased by 1.24%. The increase in the price of substitute products is one of the factors that have contributed to the increase in CPO’s price. On the other hand, there was an increase in Malaysian palm oil exports on May, 1-25 of around 0.3%.
CPO price fluctuations are expected tp continue in the future, given the high risk of a spike in the number of Covid-19 cases and the price of substitute products such as soybean oil. Forecaster also predict that a correction in palm oil prices may occur, especially in the second semester of 2021, in line with the increase in palm production so that stocks on the global market is no longer depleting.
Share this article
You may also like these articles