Malaysia's Commodity Sector To Remain Resilient

By Santhia Panjanadan KUALA LUMPUR, Dec 27 (Bernama) -- Revenue from palm oil, which is now the main cash cow of Malaysia as far as the commodities sector is concerned, may exceed RM65 billion this year on the back of high prices and rising demand. And come 2012, the commodity is expected to ride high, as least in the first quarter, underpinned by the cyclical downtrend in production. "The increase in demand and weaker growth in Southeast Asian palm oil producing countries will set the stage for the commodity to take off with a upbeat growth period, says a dealer. Prices are anticipated to hover around RM3,000 per tonne and test the RM4,000 per tonne in the next six months buoyed by anomalous weather which would impact fresh fruit bunch (FFB) harvesting. After January and sailing into end-March, CPO prices are expected to stay above RM3,000 per tonne and begin to dip thereafter as the production cycle returns to normal production pattern. However, a top industry analyst, Dorab Mistry, Head of Vegetable Oil Trading, Godrej Industries, had the most bullish forecast for next year. He predicted that the crude palm oil futures market may advance to RM3,300 per tonne by January and gradually scale up to RM4,000 per tonne by June. "It will be a tug of war next year, between bullish fundamentals and a somewhat uncertain macro economic situation, but the tight fundamentals will succeed," he was quoted as saying at a palm oil outlook conference in November. Another leading analyst, James Fry of LMC International, said the ominous global economic outlook, weighing on crude oil, would result in Southeast Asian palm oil prices coming under pressure. "The impact of petroleum prices is the single most important factor on palm oil with stocks becoming a secondary driver based on how levels affect the edible oil's premium or discount to biofuels," he said. For the first eight months of this year, Malaysia produced 12 million tonnes of the tropical oil amid signs of weakening yields due to the after effects of El Nino-driven hot weather last year. Meanwhile natural rubber exports are set to jump 30 per cent to RM32 billion this year, thanks to relatively bouyant pricings of natural latex and the synthetic variant. "In the first eight months of the year, total rubber exports already amounted to RM21.66 billion, 28 per cent more than the same eight months of last year. As for price outlook, sustainability of latex prices remained the key risk next year due to uncertain external headwinds. An analyst familiar with the industry remains cautious on the sustainability of current raw material prices and forecast 2012 latex and nitrile price assumptions at an average of RM8.30/kg and RM5.20/kg respectively, for now. Latex prices are currently trading below RM7.00 kg mainly due to softer demand from tyre manufacturers and traders in China affected by tighter credit. As for cocoa, the industry had indeed demonstrated a successful transformation of the Malaysian commodity sector from a mere traditional producer of raw materials to an exporter of higher value-added products. Malaysia is no longer the main producer of cocoa beans but the country ranks as the largest cocoa grinder in the the Asia-Pacific region and the fifth biggest grinder in the world after Germany, the United States, Ivory Coast and the Netherlands. Malaysia's cocoa products exports are expected to increase to RM4.5 billion this year from RM4.2 billion last year. On the metal front, tin suffered price declines as the European sovereign debt crisis and United States economy saw manufacturers hesitant to purchase raw materials. Prices have dwindled from an all-time high of US$33,600 per tonne in April to about US$19,000 per tonne at present, after hitting a 14-month low of $17,000 per tonne in early September. (US$1=RM3.16) -- BERNAMA