07 October 2008

Oil prices go below US$90 amid slump.

Since I havent been blogging on this blog for close to a month, here's a good article on CPO and crude oil to garner some of your interests in the commodities. The Dow Jones dropped about 800 points at one point last night - and ended 370 points lower.

CPO prices also fall tracking losses in crude oil

PETALING JAYA: Crude oil prices fell below US$90 per barrel yesterday, the first time in eight months, amid a slump in the larger commodities market caused by lingering fears of a growing credit crisis.

Last week, oil prices in New York shed as much as 12%. Oil demand in the US has decreased significantly of late on growing economic growth concerns while consumption in Japan and Europe has also weakened, throwing oil prices off their record peak of US$147 per barrel in July.

Analysts warned that demand from China, which helped boost oil prices by leaps and bounds due to its robust economic growth in recent years, could wane next.

UBS yesterday lowered its forecast for China’s gross domestic product growth in 2009 to 8% from 8.8%, on a weaker global growth outlook and expectations of a deeper and longer US recession. “The demand for oil is very dependent on the growth pace of the global economy, and the global economy is treading on very thin ice right now.

“What’s happening now is almost like a repeat of the 1929 depression,” an analyst said. Bailouts, which has become quite the buzz-word in financial markets of late no thanks to the financial turmoil in the US, spread through Europe last weekend.

Germany’s private financial sector promised Sunday to put up an additional 15 billion euros, in addition to the 35 billion euros already pledged, to give a boost to ailing Hypo Real Estate, one of Germany’s biggest housing lenders.

It also said it would guarantee all private checking and savings accounts to cope with a growing financial crisis in the country. Tracking closely yesterday’s losses in crude oil was crude palm oil (CPO) which also fell heavily, hitting limit down briefly in morning trade.

OSK Research analyst Alvin Tai said: “I’m guessing it (fall in CPO prices) is because of crude oil breaking the US$90 mark. I don’t think it’s hedge funds selling as it’s too illiquid a market for hedge funds.” “Weak soy bean oil plus market expectations of defaults with buyers likely to renege on contracts,” another dealer said of falling CPO prices.

Tai expects CPO prices to recover in the fourth quarter due to seasonal drop in production. CPO for third-month delivery fell to hit the 10% limit yesterday, down RM200 to RM1,800 a tonne before recovering to RM1,816 at midday. It closed at RM1,820 per tonne, down RM180. At current prices, producers would “start feeling the pinch,” a Singapore-based oil broker said.

“I believe current cost of production is about RM1,400 on an average with fertiliser prices being the main culprit for the increase in costs,” he said. In March, CPO prices hit an all-time high of RM4,486 per tonne. Analysts who were bullish on earnings of plantation companies then have since slashed their outlook given the continued plummeting of CPO prices.

‘’With the price of CPO coming down to below RM2,000, definitely plantation companies’ earnings would be much lower than previously,’’ an analyst said. Planters who prefer to sell based on spot prices, as opposed to those with forward sales policies, are expected to take the heaviest beating. During a severe downturn in 2000/01, CPO prices were hovering at RM600 to RM800 per tonne.


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