Home NATION CPO PRICE PLUNGES TO RM2,689.00 PER TONNE

CPO PRICE PLUNGES TO RM2,689.00 PER TONNE

CPO PRICE PLUNGES TO RM2,689.00 PER TONNE
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By Charles F. Moreira, Editor

Following our article Reinstate Exemption of Palm Oil Export Tax of 29 January 2020, the weighted average price of crude palm oil (locally delivered) according to the Malaysian Palm Oil Board (MPOB) plunged to RM2,689.00 per tonne on 30 January 2020, down from RM2,984.00 per tonne on Friday 24 January or the day before the Chinese New Year long weekend.

The CPO price was down to RM2,736.00 per tonne when trading resumed on 28 January, rose slightly to RM2,777.50 on 29 January, before it dropped by RM88.50 per tonne the following day.

According to a Bernama report on 17 January 2020, CPO futures contract on Bursa Malaysia Derivatives ended the week lower amid bearish sentiment over an increase in export tax to six percent for February, which may curb short-term demand.

“We locate support at RM2,780 and resistance at RM2,900 per tonne”, palm oil trader David Ng told Bernama.

In stock, commodities and cryptocurrency trading, a support level is the price when buying forces are expected to balance selling forces, which tends to prop the price from dropping further.


However, since the above CPO prices since the Chinese New Year break are all below the support level, so it could drop further. On the other hand a resistance level is when selling forces are expected to balance buying forces, thus tend to prevent the price from rising further.

The CPO price reached a monthly peak of RM3,111.00 on 10 January. CPO prices listed by the MPOB are posted at 8.30 am and 4.30pm for the date before the current date.

Prices of crude palm oil and of oil palm fresh fruit bunches (FFB) had increased steadily especially during the second half of 2019 when this exemption by the Ministry of Finance, intended to boost palm oil exports was in effect.

The export duty on crude palm oil in February 2020 remains at is 6% according to the Royal Malaysian Customs notice posted on the MPOB website, up from 5% in January 2020, after an export duty exemption between May and December 2019 had expired.

Palm fruit prices

On the other hand, the reference price of oil palm fresh fruit bunches (FFB) at the mill gate dropped to their lowest in January 2020, with prices ranging from RM503 per tonne for Grade C in Sabah to RM567 per tonne for Grade A in the Southern Region. These prices are around those on 6 December 2019, after having peaked at between RM600 and RM665 per tonne on 13 January 2020.

FFB prices are listed according to grades A, B and C across six regions across Malaysia – namely Northern, Southern, Central, East Coast, Sabah and Sarawak. Palm fruit FFB grades A, B and C are based upon the oil extraction rates from the oil palm fruit – namely 20%, 19% and 18% respectively.

A Malay Mail article of 25 January 2020 quotes Malaysian Palm Oil Council (MPOC) chief executive Datuk Kalyana Sundaram as saying that smallholders supply an estimated 30% of Malaysia’s the palm fruit harvest.

The rest (70%) is provided by industrial sized plantations owned by corporations such as United Plantations Bhd, Sime Darby Bhd, IOI Corp Bhd, Kuala Lumpur Kepong Bhd, the Felda Group and others, most of which are members of the Malaysian Palm Oil Association (MPOA).

According to the Kuala Lumpur-based Roundtable on Sustainable Palm Oil (RSPO), smallholders produce 40% of the world’s palm oil. Their plantation size is generally less than 50 hectares, they rely on their family members for labour and oil palm usually is their principal source of income.

The RSPO is an international non-profit organisation of stakeholders from the seven sectors of the palm oil industry – namely oil palm producers, processors or traders, consumer goods manufacturers, retailers, banks/investors, and environmental and social non-governmental organisations (NGOs), to develop and implement global standards for sustainable palm oil.

Founded in 2004, the RSPO serves as an industry watchdog and regulator which aims to promote the growth and use of sustainable oil palm products through accredited global standards.

Meanwhile, oil palm fruit (FFB) prices are still pretty respectable compared to in June and July 2019 when they were below RM400 per tonne, however from a political perspective, oil palm smallholders can vote in elections, whilst palm oil mills and corporations cannot, so politicians are usually sensitive to the concerns of smallholders and if FFB prices drop too low, it could have negative political implications especially for elected representatives.

Mandate certification?

In the same Malay Mail article above, Datuk Kalyana proposed that to overcome criticism of the sustainability and trustworthiness of its palm oil, especially in the west which, “continues to bombard the edible oil with discriminative labelling and protests”, Malaysia should make Malaysian Sustainable Palm Oil (MSPO) certification mandatory for oil palm plantations, including smallholders, in order to “prove Malaysia’s commitment to the sustainability agenda”.

MSPO certification, which was inspired by RSPO certification, enforces sustainable oil palm plantation and churning processes without compromising on quality and within a local context. MSPO certification is more affordable than RSPO certification, the latter which has been affordable to large plantations and Datuk Kalyana expects the cost of MSPO certification to be more affordable to smallholders.

However, he admitted that there are challenges in identifying, grouping and educating oil palm smallholders on the importance of getting their crop certified.

Certification burden

In December 2019, the government had announced that 63.2% of Malaysia’s palm oil plantations were MSPO-certified, but Malaysia Palm Oil Association (MPOA) chief executive Datuk Nageeb Wahab told the Malay Mail that independent smallholders are facing difficulties in complying.

“Our smallholders are divided into two categories, organised smallholders and the other is independent smallholders. Organised smallholders are the like of Felcra, Felda and Risda, which have no issue in complying with MSPO,’’ he said.

“The big issue now is to get the independent smallholders together. So the bulk of the 30% which are yet to be certified are actually independent smallholders.

“It is not easy for these guys as the matter of cost will be a huge factor for them to be certified. But, we see that the government now is really pushing hard to help them in this regard,’’ he added.

So far, 90% of MPOA members are already certified, with the rest to follow suit soon.

However, the downside of certification, according to Datuk Nageeb is that its cost has deterred major palm oil players from wanting to expand their plantations, coupled with possible blowback due to environmental concerns.

“All the big players in the industry have no appetite to expand. One is the issue of the cost in ensuring their plantation comply with regulations and two, push back due to environmental concerns. They are more focus now on research and development on improving yield among other innovations,’’ Datuk Nageeb said.

Is it the right time?

We had proposed in our article  Reinstate Exemption of Palm Oil Export Tax, that the Ministry of Finance should reinstate exemption of export tax on palm oil in 2020 to help exporters overcome the current challenges they face from India’s restriction on imports of refined palm oil and alleged Indian government pressure on importers in India to boycott Malaysian palm oil, coupled with some western countries’ ban or restrictions on imports of palm oil.

Likewise, we ask whether it is the right time to additionally burden both large corporate and smallholder oil palm plantations with the additional costs of certification and compliance, when as Datuk Nageeb said above, these are already an additional burden on large plantations, so what more smallholders.

After all, only two western countries – namely Netherlands and the United States of America are amongst the major buyers of Malaysian palm oil and these major buyers altogether account for two thirds of worldwide palm oil purchased from Malaysia.

They are in order of palm oil purchased in 2019 – India (4,409,511 tonnes), China (2,490,503 tonnes), Pakistan (1,085,546 tonnes), Netherlands (880,813 tonnes), Turkey (709,262 tonnes), Philippines (629,086 tonnes), Vietnam (595,265 tonnes), United States of America (542,161 tonnes), Iran (521,669 tonnes) and Japan (498,359 tonnes), with the rest of the world (6,107,083 tonnes).

Whilst mostly western environmental NGOs have been putting pressure on their respective governments to restrict or ban imports of palm oil over allegations of poor sustainability practices on plantations, how many of our regional neighbours and other countries in Eastern Europe, Asia, Africa and Latin America which buy Malaysian palm oil are as demanding over the sustainability practices and standards of Malaysia’s palm oil plantations?

Basically, does levying export duty and mandating certification make sense at this challenging time for the oil palm and palm oil industries?

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