Some regions in Indonesia over the past few weeks, also in Malaysia and Thailand, are hit by drought due to very little rainfall. Adverse weather led to speculation of the possibility of El Nino coming although it is too early to conclude. By contrast, in Brazil, there is high rainfall that caused soybean land to be very wet so it cannot be harvested. This causes a decline in the supply of soybeans in South America.
Wet weather also hit Paraguay, which is adjacent to Brazil. The same was experienced by Argentina. In addition to delayed harvest, soybean crops were threatened by insect and fungi. As reported by Oil World at the end of February, the port in Vancouver Canada is overcrowded with 48 ships queuing waiting for agricultural commodities, including canola. This is a nightmare for the freight forwarders due to high cost of waiting.
Based on the information obtained from Executive Director of the Indonesian Palm Oil Association (GAPKI), Fadhil Hasan, adverse weather and high global vegetable oil demand has boosted price of vegetable oils, including CPO and its derivatives from Indonesia. CPO price was recorded at USD902 per MT in the second week of February and continues to climb to USD965 per MT at the end of February. CPO price increase is the effect of decrease of supply from CPO stocks in Malaysia and demand began to increase in the world market, due to scarcity of other vegetable oils, as a consequence of adverse weather in vegetable oil producing countries. Therefore, CPO as substitute oil is hunted by importers.
The volume of exports of CPO and its derivatives in February reached more than 1.58 million tons, an increase of 13% compared with exports of last month at 1.57 million tons. The rise in exports of CPO and its derivative products from Indonesia is due to increasing demand from major export destinations, except China. Exports to India rose 20% from 261 thousand tons last month to 313 thousand tons in February 2014.
Exports to Bangladesh also increased significantly up to 122% from 41 thousand tons in January to 91 thousand tons in February. Likewise, exports to the European Union and the United States, each of which rose by 13% and 30%. In contrast, exports of CPO and its derivatives from Indonesia to China recorded a decline of 33 thousand tons (12%) of 287 thousand tons in January to 254 thousand tons in February. The fall in exports to China is due to high vegetable oil stocks as a result of the cumulative arrival of imported soybeans, CPO and sunflower oil in January. In terms of price, the average price of CPO in February 2014 moved in the range of USD 863 - USD 965 per MT with average price of USD 903 per MT. The average price is up approximately 4% from the average price in January at USD 865 per MT.
In March, the price is expected to continue to rise in line with declining global vegetable oil stocks due to bad weather. Until mid-March, price moves in the range of USD 965 - USD 1,000 per MT. GAPKI estimated that CPO price until the end of March will still move in the range of USD 970 - USD 1,000 per MT. Meanwhile, export check price (HPE) in March 2014 determined by the Ministry of Trade at USD 813 and export duty at 10.5% with reference to the average CPO price in Rotterdam at USD 884/MT. (E)
Business New - March 21, 2014