If you actively trade Crude Palm Oil Futures (FCPO), knowing the factors that affect crude palm oil (CPO) prices is crucial for your trading success. You are able to make better informed decisions rather than deciding based on rumours or worst, emotions.
So in today’s post we list 5 factors that are likely to affect the prices of crude palm oil to help you become a better FCPO trader.
(1) Supply and demand of palm oil
China, India and Europe are among the largest importers of palm oil. Any crisis that arise like global economic downturn, the euro zone debt crisis and slowing food demand in India and China will lead to a decrease demand of palm oil as these countries would spend less on imports during these times. Less demand will push the price of crude palm oil down as it leads to surplus of supply of palm oil in palm oil producer countries such as Malaysia and Indonesia.
(2) Price of competing vegetable oils
The price and demand of other vegetable oils such as soybean oil, sunflower oil, rapeseed oil and corn oil can also affect the price of crude palm oil. For example, bad weather such as drought in soybean producer countries like the US, Brazil and Argentina will lower the production of soybean oil therefore affecting soybean oil prices that will help increase palm oil prices.
(3) Weather patterns
As palm oil plantations are mostly in tropical countries such as Malaysia and Indonesia, heavy rain could flood the plantations and hamper harvesting. Dry spell on the other hand would effect growth on the plantation thus lowering palm oil production.
(4) Import policies of importing countries
Import policies and laws of countries that import crude palm oil too can affect the price of crude palm oil. Australia for example had proposed a bill to enforce labeling palm oil as product ingredient instead of vegetable oil. If this bill was passed, consumers who believe that palm oil is bad because palm oil plantations have contributed to deforestation, could easily avoid products that contain palm oil. This could lead to low demand for palm oil-based products thus affecting the price of crude palm oil.
(5) Changes in taxation and import duty
Dorab Mistry, an international palm oil industry analyst renowned for his bullish CPO price forecasts, was reported recently as saying that India should impose at least 10% import tax on crude palm oil to protect its own farmers. This move, if implemented, will force palm oil producer countries like Malaysia and Indonesia to increase the export price of crude palm oil.
The higher cost will drive less demand for palm oil-based products as their prices will shoot up and consumers will opt for cheaper alternative oils. Less demand will raise the inventory level in crude palm oil producer countries such as Malaysia and Indonesia, pushing the price of crude palm oil down.
CPO export tax policy in palm oil producer countries also play a part in setting the crude palm oil prices. In Malaysia, the Plantation Industries and Commodities Ministry has proposed to cut the palm oil tax rate from the current 23% to between 8% and 10%. This move will help strengthen exports and reduce the inventory level. Indonesia, the largest crude palm oil producer, had cut its CPO export duty from 20% to 16% in the final quarter of 2011.