Opened higher, the benchmark August 2014 contracts of crude palm oil (CPO) retreated to red territory, down RM18 to RM2518 per ton on Bursa Malaysia Derivatives Tuesday (May 20). The commodity lost more than 2% in two trading days, dragging down shares of most plantation companies listed in Jakarta, Singapore, and Kuala Lumpur.
June contracts lost more than 1% to RM2590 Tuesday, while October contracts down RM12 to RM2519 per ton. November contracts also down RM12 to RM2522, while January 2015 contracts at RM2538/ton. In Jakarta’s physical market, KPB Nusantara, the joint marketing office of state plantations, withdrew all of ten CPO packages auctioned off (11,000 tons) Tuesday due to low bids. Participants offered as low as Rp8903-9282/Kg (VAT 10% included), way below auction prices settled on Monday (Rp9118-9438).
Shares of plantation companies were mostly under pressures in the region. Astra Agro Lestari down 5% in Jakarta, while First Resources and Kencana AGri lost more than 2% each in Singapore. KL Kepong and IOI Corp down 0.8% each in Kuala Lumpur, while Salim Ivomas lost 4.43% in Jakarta.
Yesterday, Sime Darby Berhad, one of the world’s largest CPO producers, reported 10.8% growth in output last month, way below the average of 23 companies listed on KL Stock Exchange (+18%), but still substantial, given its size (188,089 tons in April).
Smaller player TH Plantation, meanwhile, produced 13,644 tons of CPO last month, surged by 27% from April 2013. From Singapore, First Resources Ltd—controlled by Indonesian family of Fangiono Ciliandra—reported CPO output of 44002 tons last month, grew by 7.6% from the same month last year, mainly due to modest growth of FFBs harvested (+7.8%).
Report of stronger output growth in Indonesia and Malaysia has contributed to corrections of CPO prices in the futures market from RM2855/ton for March (average spot month settlement price) to RM2649 for May 2014 or a decline of 7.2% in two months. If the current trend continues, average spot month price for second half of 2014 would move closer to the corresponding period of 2013. Looks like that it’s difficult to match average prices of 2012 at RM2906 per ton because for the first five months of 2014, the average price is RM2660 only.
Most believe correction in CPO futures would continue as production ramps up in both Indonesia and Malaysia in the coming months.
DISCLAIMER: NO POSITION IN STOCKS MENTIONED IN THIS ARTICLE