FocusStrong Asia PME on high CPO prices may deter buying through Q2

15 February 2011 04:27  [Source: ICIS news]

Palm oil fruit being harvested in Malaysian plantationBy Serena Seng

SINGAPORE (ICIS)--Buying activities in the Asian palm methyl ester (PME) market significantly weakened as product prices continued to rise on the back of strong feedstock values, traders said on Tuesday.

At 11:04 hours Singapore time (03:04 GMT), PME feedstock crude palm oil (CPO) for March delivery was trading at Malaysian ringgit (M$) 3,967/tonne ($1,300/tonne) on Bursa Malaysia.

“With CPO values currently so high, buying interest for PME is weak as European buyers will prefer to purchase alternative biofuels at lower or similar prices,” said a Malaysian producer.

There were concerns that the price uptrend in both the PME and CPO markets would prolong the weak demand through the second quarter, market players said.

PME and CPO prices rose in tandem towards the second half of last year, with price spikes from June 2010 to date pegged at 27.5% and 36%, respectively, according to ICIS data.

On Tuesday, PME offers were hovering at $1,400-1,420/tonne FOB (free on board) SE (southeast) Asia. ICIS last assessed PME prices on 10 February at $1,380-1,400/tonne FOB SE Asia, up $70-80/tonne week on week.

Demand for Asian PME had weakened since the third quarter of last year as prices skyrocketed due to high feedstock values, with the requirements of the region's key market - Europe - being supplemented by more competitively priced alternative biofuels such as soybean methyl esters (SME) and rapeseed methyl esters (RME), market sources said.

“Business had slowed and we don’t get many orders now,” said an Indonesian producer.

Flooding was adversely affecting harvests in the palm plantations of Malaysia and Indonesia, putting a strong presure on CPO prices to increase, which in turn was nudging up PME values.

“I believe the palm oil yield would be significantly lower this harvest season in March-April as the palm trees are all stressed up by the bad weather and are unable to bear high yield fruits,” said a plantation owner.

Asia was expected to ramp up PME production in March, in anticipation of a seasonal pick-up in demand from Europe, but most traders doubted that demand would rebound significantly.

($1 = M$3.05)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections
To discuss issues facing the chemical industry go to ICIS connect

By: Serena Seng

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