17 July 2018 ( Lagos ) : Over the ongoing 2017/20186 season, CPO production is expected to rise 4.5MMT to touch a three-year high of 69.7MMT, as fresh fruit bunches have steadily recovered from the effect of El Nino. Juxtaposing the production with estimated consumption (+3.6MMT to 65.2MMT) suggests are cord surplus of 4.6MMT, the expectation of which has kept prices depressed since the beginning of the year (-6.1%). 

In terms of region drivers, estimated higher production over the period sprung from Indonesia (+2.5MMT) and Malaysia (+1.6MMT) – accounting for 85% of world production – wherein harvest has been strong owing to improving weather conditions. On the demand side, confidence surrounding strong economic growth, rising urbanization and disposable income, is expected to drive growth in consumption with much of it coming from India (+1.3MMT), Malaysia (+432KMT) and U.S. (+307KMT) which should offset soft demand in the Euro area and Egypt.

Going into the 2018/2019 season, production is also projected to expand 2.9MMT to 72.6MMT while consumption is expected to increase to 68.1MMT (+2.9MMT), indicating a surplus of 4.5MMT (vs. surplus of 4.6MMT in the ongoing season). On supply, the increase is on the back of improved weather patterns as well as large oil extraction from high yield seedlings with Indonesia (+2MMT) and Malaysia (+5KMT) still accounting for much of the growth. 

On the other hand, the higher consumption would stem from India, Indonesia, and Malaysia with combined increase of 1.9MMT. The foregoing suggests that the surplus position would persist further hence, analysts expect CPO prices to sustain its downtrend over the remainder of 2018. In fact, global CPO inventory level has grown to a four-year high of 10.8MMT which further guides to lower CPO prices.

Source: ARM Securities Limited

Reporting for EasyKobo on Tuesday, 17 July 2018 in Lagos, Nigeria

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