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POINTERS 2014 MPOC
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Mapping The Palm Oil Price - 2013 Market Perspective:
Impact of Palm Oil Supply and Demand on Palm Oil Price Behaviour
By: Mr. Ayat K. Ab Rahman

Ayat. K. Ab Rahman, graduated from the Northern University of Malaysia (UUM) with a Bachelor of Economics (Hons), majoring in an econometric in 2002. He continued with his further studies in Master of Economics (Econometric) from the National University of Malaysia and graduated in 2004. He is currently Senior Research Officer in the Techno-Economic Unit of the Malaysian Palm Oil Board (MPOB). He specialises in the area of econometric modeling, forecasting, cash flow analysis, and smallholder development with 9 years of experience in the palm oil industry.
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The paper highlights the impact of price behaviour on Malaysian palm oil supply and demand and discusses its impact in 2013. The price of CPO is dependent on a lot of factors that varies according to time. CPO price behaviour is determined by fundamental factors i.e. both supply and demand factors in the world market. Besides that, CPO price is also dependent on the market sentiments factor which is unpredictable, e.g. the extreme weather phenomenon, political crisis, new policies or regulations and the impact of natural disasters. In 2012, CPO price behaviour was affected negatively by a combination of both supply and demand factors. From the supply perspective, the CPO stock build-up arising from high carry-over stocks at the beginning of the year and an increase in CPO production had contributed to the CPO price bearishness. Meanwhile, weaker export demand from major importing countries, like China, P.R. and India has become a significant factor in contributing to the decline in CPO prices in 2012. The introduction of Malaysia’s new CPO export tax structure effective 1st January 2013 is likely to result in an increase in palm oil exports and thus, indirectly reduce the high palm oil stock levels in the country. Meanwhile, the B5 programme is to be expanded throughout Malaysia, which will also reduce the level of palm oil stock availability in the country in 2013. Besides that, the Malaysian palm oil supply growth in 2013 is expected to increase marginally due to the introduction of the oil palm replanting scheme with an allocation of RM100 million. The scheme is expected to see the replanting of 100,000 hectares of unproductive palms and palms over the age of 25 years. These scenarios will indeed be a positive indication for the firming of CPO prices in the market place in 2013.


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Questions & Answers (23) :
M. AYATOLLAH KHOMEINI AB RAHMAN
5 years ago
Thank you very much for your continued interest in my presentation. Mr. Jaafar thank you again for your positive comments.
M. AYATOLLAH KHOMEINI AB RAHMAN
5 years ago
Dear Mr. Jaafar, for your question no. 5, please refer to the Malaysian Oil Palm Statistics book published by MPOB every year. In this book we used the notation 'export of oil palm products' to represent all PO export products. Therefore, I followed the term that has been commonly used by MPOB (please refer slide no. 35).
M. AYATOLLAH KHOMEINI AB RAHMAN
5 years ago
Dear Tuan Jaafar, for your question no. 4, I am fully in agreement with you that the refining industry is indeed an important sector in the Malaysian palm oil industry. This is because PO export is a major components for Malaysia PO demand and this has provided price liquidity to CPO price behaviour in the market. Besides that, this sector also provided value addition to CPO production. Based on my personal opinion to continue to sustain this industy in future (with Indonesia coming strongly into the picture) Malaysia needs to ensure that its downstream sector (including refining industry) can continue to operate efficiently. Therefore, the Goverment will continue to support this industry with introduction of good policies in order to enhance the well-being of this industry.
M. AYATOLLAH KHOMEINI AB RAHMAN
5 years ago
I also do agree with you Mr. Jaafar, being an expert of the PO industry yourself, besides the relationship between CPO production and PO import, the other reason was also due to the effect of the the Indonesian tax structure implemented in Sept. 2011. Simply put, it is indeed cheaper to import PPO from Indonesia rather than refine the CPO in Malaysia.
M. AYATOLLAH KHOMEINI AB RAHMAN
5 years ago
Dear Mr. Jaafar, for your 3rd question my answer will be supported by empirical analysis. Based on monthly time series data for PO import and CPO production in 2012, the correlation index between both variables was registered at negative 0.8364 (please refer to slide no. 31). This means that, in statistics we can say that there is a strong negative relationship between both variables. This means that, when CPO production is on the decline, then PO imports will increase and vice-versa.
M. AYATOLLAH KHOMEINI AB RAHMAN
5 years ago
Dear Mr. Jaafar, for your second question I will contact you by phone to give my thoughts on it.
M. AYATOLLAH KHOMEINI AB RAHMAN
5 years ago
Thank you very much Tuan Jaafar for your series of questions. For the 1st question: As you know, before 1st Jan 2013 CPO export duty was hovering at 24%, but after 1st Jan 2013 the CPO export duty was in the range of between of 4.5% to 8.5%. In January and February 2013 due the gazetted CPO price being below than RM2,250/t, therefore the CPO export duty was Nil. For your infor. in Jan 2013 the CPO export volume was recorded at 385,510 tonnes, which was indeed higher by about 138% as compared to Jan 2012 at 161,733 tonnes. In Feb. 2013 the CPO export duty was also Nil, and therefore, I strongly believe that CPO exports will also be high in this month. Besides that, based on my opinion, you are also right in that this strategy will also contribute to making Malaysian Processed Palm Oil (PPO) more compeive in the world market. Therefore, I believe in 2013 export PPO will also witness an increasing trend. Hopefully, this will be good news for PORAM members which was what the industry players wanted in the first place.
M. AYATOLLAH KHOMEINI AB RAHMAN
5 years ago
Thank you Mr. Desmond for your 2nd questions. One of the critical reasons considered was Indonesian export duty which is followed by CPO price and its production. These fundamentals, however, play a less important role to the industry players when doing business as profit is their main objective. In this respect, these players will purchase palm oil from wver offering cheaper prices especially from Indonesia, later export the palm oil at higher prices as the prices were observed increasing in January 2013 compared to December 2012.
Mohammad Jaaffar Ahmad
5 years ago
Dear Mr. Ayat, in your slide no. 34, I would like to correct that Malaysia does not export 'OP products'. OP or oil palm refers to Fresh Fruit Bunches (FFB) and Palm Kernel (PK). Once it is processed i.e crushed/refined/fractionated into CPO/PPO and CPKO/PKO, it cannot be called OP products anymore but PO products (Palm Oil). Malaysia does not export FFB nor PK. There is a reason why we called plantation as 'oil palm plantation' and called mills/refineries as 'palm oil mills or palm oil refineries'. Would you comment on that? TQ
Mohammad Jaaffar Ahmad
5 years ago
Dear Mr. Ayat, in your slide no. 37, you concluded that 'Malaysian CPO price behaviour is more dependent on world demand factors as compared to the domestic factor'. In the same slide you also showed that 93% of our export is composed of PPO. Due recognition should be given to our refining industry (domestic factor) that provide value addition to CPO and drive the demand/price of CPO domestically. Do you agree that the refining industry is the workhorse of the palm oil industry providing price liquidity to CPO price behaviour?
Mohammad Jaaffar Ahmad
5 years ago
Dear Mr. Ayat, refer to your slides no. 30, 31 and 32. I disagree with your analysis that the highs and lows import of PO are due to seasonal CPO production in Malaysia. What you need to analyse is to break the component of the PO stocks into CPO and PPO. In 2012, there was an increase of almost 1,000% of PPO import and a reduction of 50% in terms of CPO import. This is mainly due to the effect of the Indonesian duty tax structure implemented in September 2011. Simply put, it is cheaper to import PPO from Indonesia rather than refining CPO in Malaysia. As a result our total PO stock does not reduced despite the 5 million CPO duty free quota allocation in 2012. As a result of lower uptake of CPO domestically, the CPO price eventually collapsed in October 2012. What is your comment on that? TQ
Mohammad Jaaffar Ahmad
5 years ago
Dear Mr. Ayat, in your slide no. 46, you said that 'CPO price is likely to be firmer in 2013'. Can you put 'some numbers to define firmer price?. TQ
Mohammad Jaaffar Ahmad
5 years ago
Dear Mr. Ayat, congratulations for the detailed analysis. I have a series of Questions. In your slide no.42, you mentioned that 'the introduction of Malaysia's new CPO tax export structure between 4.5% to 8.5% effective Jan 2013 will contribute to the increase in CPO export'. I am perplex with this logic. Can you explain how it will works on CPO and not on Processed Palm Oil (PPO)? TQ
M. AYATOLLAH KHOMEINI AB RAHMAN
5 years ago
Thank You Mr. Desmond Ng. As you know allocation for OP replanting scheme in 2013 at RM100 million and estimated around 100,000 hectares of unproductive OP trees will be replanted. That umption (to cut CPO production by 200,000 mt) is based on OP trees with OP yields at 10 tonnes per hectare per year and with average OER at 20%. Based on previous replanting programme and CPO price level, normally OP producers with OP yields below than 10 tonnes per hectare per year will apply for the OP replanting scheme introduce by MPOB.
M. AYATOLLAH KHOMEINI AB RAHMAN
5 years ago
Thank You Mr. Desmond Ng. As you know allocation for OP replanting scheme in 2013 at RM100 million and estimated around 100,000 hectares of unproductive OP trees will be replanted. That umption (to cut CPO production by 200,000 mt) is based on OP trees with OP yields at 10 tonnes per hectare per year and with average OER at 20%. Based on previous replanting programme and CPO price level, normally OP producers with OP yields below than 10 tonnes per hectare per year will apply for the OP replanting scheme introduce by MPOB.
Desmond Ng
5 years ago
Dear Mr Ayat, you mentioned that import of PO in Malaysia will increase this year. As a major PO producer and exporter, why Malaysia still need to import PO instead of using local PO?
Desmond Ng
5 years ago
Dear Mr Ayat, I've read from news reported that the replanting will reduce the CPO production by 350,000 MT. But in your presentation slide 28, your mentioned that the replanting scheme is expected to cut CPO production by 200,000 MT, can you explain your view on this difference?
M. AYATOLLAH KHOMEINI AB RAHMAN
5 years ago
However, that scenario (positive relationship between PO import and stock) not always be followed. This is because if the PO import shows an increasing pattern but OP export products also increased, therefore PO stock will be declined.
M. AYATOLLAH KHOMEINI AB RAHMAN
5 years ago
There is positive relationship between PO import and stock. This means that when PO import increase, PO stock will increase. While, when PO import decrease, PO stock also will decrease (Positive Relationship).
Nurul Hufaidah
5 years ago
What is the relationship between palm oil import and palm oil stock?
Nurul Hufaidah
5 years ago
What is the relationship between palm oil import and palm oil stock?
M. AYATOLLAH KHOMEINI AB RAHMAN
5 years ago
Based on current scenario, our CPO production will continue in positive growth in the future. This is due to oil palm planted areas keep on increasing every year especially in Sarawak and Sabah.
Nurul Hufaidah
5 years ago
1. Based on your opinion, is it our CPO production will continue in positive growth in the future?
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