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CPO futures soar on biodiesel promise

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Wednesday, 30 May 2012
PETALING JAYA: Crude palm oil (CPO) futures prices on Bursa Malaysia Derivatives hit the RM1,700 per tonne mark yesterday – the highest in more than two years – in anticipation of higher demand for biodiesel globally.

The CPO for January delivery closed at RM1,724 a tonne versus RM1,680 on Wednesday while the spot month November South CPO settled at RM1,685 against RM1,645 previously.

Analysts contacted by StarBiz said they had expected further strengthening of CPO prices, given changes in the demand structure for palm oil, from food to biodiesel, particularly in Europe, the United States, China and countries in the Asia-Pacific.

They said the demand for biodiesel – the product of any vegetable oils (palm oil included) mixed with crude oil-based diesel – increased when crude oil prices hit a record high of US$78.40 a barrel in mid-July on the New York Mercantile Exchange.

As a result, energy producers worldwide have been scrambling for cheaper alternatives, such as blends of palm oil and rapeseed oil with diesel or a mixture of ethanol (made from corn and sugar) and petroleum.

Other encouraging factors for CPO include China's abolishment of palm oil import quota and the compulsory labelling of trans-fatty acids in food products in the United States.

China, which consumes about one billion tonnes of diesel a year, is expected to build up to 100 biodiesel plants over the next five years in face of spiralling crude oil prices.

Malaysia also has approved 98 biodiesel plants nationwide while Europe's demand for biodiesel is expected to hit one million tonnes a year.

An analyst with a bank-backed brokerage said: "The CPO price hike came as no surprise as more biodiesel players and food producers are in the midst of accumulating their palm oil inventories for next year."

He said the move would result in another upward revision in the average price forecast for CPO before year-end.

In September, market players revised their average price forecast to RM1,500 a tonne this year, RM1,650 next year and RM1,800 in 2008.

The analyst said he was optimistic the average CPO price could be sustained above the RM1,600 level this year compared with last year's average of RM1,400.

Huge demand for biodiesel would significantly benefit palm oil, currently the cheapest vegetable oil available as feedstock for biodiesel, he said.

Among the vegetable oils, palm oil has the highest oil yields at 3.8 tonnes per hectare compared with soya bean (0.48 tonne/ha), rapeseed (1.33 tonnes/ha), sunflower oil (0.66 tonne/ha) and Jathropa (1.44 tonnes/ha).

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