ayatollah – OPIEJ

The Impact of Prolonged Low Brent Crude Oil Prices on CPO Price Movement

mpob_admin — Wed, 29 Aug 2018 00:32:13 +0000

The article highlights the movement of crude palm oil (CPO) price in the world market and seeks to find various significant factors affecting it. Focus is given to Brent crude oil (BCO) price and the impact of BCO’s prolonged low price on CPO price movement. Both prices of CPO and BCO have moved in tandem ever since the introduction of palm-based biodiesel and the implementation of the Envo Diesel programme in March 2006, indicating that BCO affects the development of CPO price. In addition, due to the complexity of the oils and fats sector, CPO price is also found to be affected by other time-varying factors, such as soyabean oil (SBO) prices, palm oil (PO) supply and exports. SBO is a strong competitor of CPO due to the substitutability factor and competes for the same markets of the global edible oils sector. Meanwhile, from the supply perspective, any increase in PO supply can cause its price to be bearish in the market. In addition, any decline in PO exports to major importing countries, especially India, China and European Union (EU), can also depress CPO price. The results of the bound test for the CPO price model indicate the existence of a long-run relationship between CPO price and SBO price, BCO price, CPO production and PO export. At the same time, the short-run analysis found that BCO and SBO prices have a positive relationship with CPO price. The results indicate that in the short-run, CPO price will increase when BCO and SBO prices increase. BCO price is able to have a high impact on CPO price, especially during the high BCO price regime. However, when BCO price declines and remains stable below USD 50/barrel, its impact on CPO price movement becomes weak. As a result, the impact of prolonged low BCO prices on CPO price movement will only be marginal; thus, CPO price can still be bullish in the market place if SBO price increased, if PO supply availability declines and export increases in the market place.

Keywords: crude palm oil, Brent crude oil, biodiesel, time-varying factors, bound test and supply availability

Impacts of the New CPO Export Tax Structure on the Malaysian Refining Industry

mpob_admin — Tue, 28 Aug 2018 14:55:29 +0000

The performance of the Malaysian palm oil refining industry had been greatly affected since Indonesia revised her palm oil export tax structure in 2012, which made her palm products more competitive in the world market. To improve the performance of the Malaysian refining industry, the government also revised its long-standing crude palm oil (CPO) export tax (operative since the 1970s) and implemented a new export tax structure, effective 1 January 2013. This is a proactive approach by the Malaysian government to increase competitiveness. As a result, the performance of the industry has been much better after the implementation, with exports of oil palm products increasing, stocks of palm oil declining, the price of CPO showing an upward trend and volatility reduced, refinery capacity utilisation rate increasing, purchases of CPO by refineries rising, processing of CPO growing, and production of finished products also expanding. Average capacity utilisation recorded a higher rate at 56.9%, or an increase by 10% after implementation of the new export tax structure as compared with the rate in 2012. The total volume of CPO purchased by refineries also increased to 12.62 million tonnes in 2013 from 11.49 million tonnes in 2012. Meanwhile, the total volume of CPO processed by refineries in 2013 had increased to 15.89 million tonnes compared with 14.07 million tonnes in 2012, or an increase of 12.9%. Production of finished products also recorded positive performance at 0.30 million tonnes in 2013 compared with 0.29 million tonnes in 2012. A survey carried out on refineries showed that the majority of them (71%) felt that the government should continue with the new CPO export tax structure.

Keywords: new CPO export tax structure, competitiveness, capacity utilisation rate

The Impact of La Niña and El Niño Events on Crude Palm Oil Prices: An Econometric Analysis

mpob_admin — Tue, 28 Aug 2018 14:34:53 +0000

Both the La Niña and El Niño events are deemed as being strong market sentiments issues that supported crude palm oil (CPO) prices in an upward trend. An analysis carried out was shown that both events have a positive relationship with CPO price movements in the market. This study also reveals that the effect of the La Niña event on CPO prices is greater than that of the El Niño event. Production will normally decline as heavy rainfall usually brings floods that could disrupt harvesting and the collection of fruits in low lying oil palm areas. Palm oil stock levels could also decline due to lower supply availability. In contrast, the effect of the El Niño event is seen on a long-term basis. Hot weather conditions during El Niño could result in less rainfall and have a stress effect on oil palm. This could bring down the yield of fresh fruit bunch (FFB) production in the future. The study revealed that past El Niño events (at lagged 8 to 22 months) can also affect current CPO production. With the incorporation of these two phenomena into the model (La Niña and El Niño events) developed for this study, it was found that the CPO price can be forecast more accurately. By using the model, the direct and indirect impact of La Niña and El Niño events on CPO prices can be determined. The results also showed that when La Niña and El Niño events occur, CPO production in a year will decline by 3.37%, palm oil stock level will decline by 2.5%, while the CPO price is likely to be higher by 10.2% as compared to a situation when the phenomenon did not occur.

Impact of Palm Oil Supply and Demand on Palm Oil Price Behaviour

mpob_admin — Tue, 28 Aug 2018 14:26:41 +0000

The article will highlight the impact of supply and demand and market sentiment factors on the Malaysian palm oil price behaviour, and will examine their impact in 2013. The price of crude palm oil (CPO) is dependent on many factors that vary from time to time, such as fundamental factors, i.e. both supply and demand factors in the world market and unpredictable market sentiments, e.g. extreme weather phenomenon, political crisis, new policies or regulations, and impact of natural disasters. The CPO price in 2012 is a good example where it 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 its bearishness in 2012. From the demand side, it is a weaker export demand from major importing countries, like China, P R and Pakistan. The introduction of Malaysia’s new CPO export tax structure effective 1 January 2013 is likely to result in an increase in palm oil exports and, thus, indirectly to a reduction in the high palm oil stock levels in the country. Moreover, the B5 programme which is to be expanded throughout Malaysia in 2013/2014 will also reduce the level of palm oil stock availability in the country. Besides that, the Malaysian palm oil supply growth in 2013 is expected to increase moderately due to the introduction of the oil palm replanting scheme with a government allocation of RM 100 million for this purpose. The scheme is expected to see the replanting of 100 000 ha of unproductive palms and palms over the age of 25 years. These scenarios will indeed be a positive indication of the firming up of CPO prices in the market place in 2013. The article will also incorporate the use of an econometric modeling method for an analysis of the factors affecting CPO price behaviour.

The Economic Impact of the North-east Monsoon and La Niña on Oil Palm Production in Malaysia

mpob_admin — Tue, 28 Aug 2018 14:23:42 +0000

La Niña, which occurs during the north-east monsoon season, normally brings higher rainfall than during normal weather in Malaysia. This study shows that La Niña had caused flooding in some oil palm planted areas in the past. The floods in effect disrupted harvesting and collecting activities and fresh fruit bunches (FFB) on the oil palm left overripe or become rotten. Crude palm oil (CPO) production declined and reduced income of oil palm growers. The potential losses of FFB by oil palm estates during La Niña in 2010 and 2011 were estimated to be about 239 181 t and 224 776 t respectively. In term of potential income losses, they were estimated at RM 155.10 million and RM 168.22 million during the two years. One of the reasons for the increase in the cost of FFB production was the damage of infield roads during floods. Hence, floods affected estates had spent RM 25.80 million and RM 26.48 million to repair the roads in 2010 and 2011 respectively. This study also showed that CPO production depends negatively with a dummy variable used to proxy La Niña. In the absence of La Niña, CPO production in 2010 should have been around 17.60 million tonnes when the actual CPO production during the year registered at only 16.99 million tonnes. The total potential CPO production loss was estimated to decline by 3.5% and 2.2%, as compared to production without La Niña in 2010 and 2011 respectively.