PETALING JAYA: Crude palm oil (CPO) may hold steady above RM3,000 per tonne by June but prices are currently being bogged by recovery in global palm oil production, better soybean crop in South America and weaker exports outlook, said market players.

CPO futures on Bursa Derivatives settled lower yesterday with the three-month benchmark July contract down RM6 to close at RM3,265 per tonne. CPO prices currently have fallen by about 16% after touching a high of RM3,955 per tonne on Feb 11.

The latest palm oil statistics for April to be released by the Malaysian Palm Oil Board (MPOB) early next week would be an important indicator for the direction of CPO prices in the next two months.

Interband Group of Companies senior trader Jim Teh said: “Based on the five-year price cycle, the price of the commodity should be falling. For CPO to still stay above RM3,000 is like a double bonus for oil palm plantation companies despite the current bearish factors.”

Last month, palm oil expert Dorab Mistry had to revise his earlier CPO forecast given the anticipation of higher global palm oil production this year. He expects the RM3,000 per tonne price support to be broken and push CPO prices to trade even lower in the coming months.

For this year, Indonesia's CPO production is expected to be higher at 25 million tonnes from an earlier forecast of 24 million tonnes.

In addition, a seasonal rise in Malaysia's CPO output has kicked in earlier than expected, boosting global incremental supply in 2011 by six million to 6.5 million tonnes. This was the first time in two years that supply growth would exceed demand growth, Dorab said.

Given the larger production, meanwhile, ECM Libra Investment Research in its sector monthly review said: “Should Malaysian palm oil inventory cross the two million tonnes level, we believe the industry will start to see a CPO oversupply situation.”

To recap, the historical high in inventory was at 2.27 million tonnes achieved in 2008.

In March, CPO inventory rose 9% to hit 1.6 million tonnes the highest level since December. Production also rose 29% to 1.42 million tonnes.

An analyst with a bank-backed research house also said better palm oil production seasons during April to October 2011 may see CPO prices facing further downward pressure.

However, the expected CPO oversupply situation could be offset with the implementation of a mandatory B5 biodiesel programme slated for next month, he added.

It is envisaged that the B5 biodiesel programme would see some 500,000 tonnes of local palm oil stock being taken up.