Maybank IB: Global banking crisis may impact CPO prices

While remote at this juncture, the lesson from the past global financial crisis suggests that a full-blown banking crisis may lead to a shortage of the US dollar globally, impeding global trade and driving down commodity prices, including crude palm oil (CPO).

Maybank Investment Bank (Maybank IB) said this is because the US dollar is the dominant currency in global foreign exchange markets, with a nearly 90% market share.

“Given the US dollar’s dominance in global trade, a shortage of the currency will likely be detrimental to imports and exports, as seen in the 2007-08 global financial crisis, where non-US banks abruptly found themselves short when US financial firms were unwilling to lend US dollars to their foreign counters.

“Although the present banking crisis may differ from the global financial crisis period, a global shortage of the US dollar may still lead to unintended trade disruption [although more countries are diversifying away from US dollar-denominated trades in recent years], inventory pile-up, and pressure on global commodity prices,” it added.

In a research note on Monday (March 27), the investment bank highlighted that in 2008, future CPO prices fell by as much as 68% to RM1,390 per tonne in October, from RM4,330 per tonne in March that year, due to the global financial crisis.

Maybank IB cautioned that although CPO accounted for approximately one-third of global oils and fats production in 2022, its share of global exports was much higher at 54%.

“This makes CPO more susceptible to US dollar shortage compared to other edible oils. Even before this banking crisis, several importing countries were already short of the US dollar, such as Sri Lanka, Pakistan, Bangladesh, and some African countries, to name a few.

“We remain ‘neutral’ on the sector on the assumption that central banks will learn from the past to take pre-emptive measures to avert another global financial crisis,” it said, emphasising that if central banks in the West fail to arrest the banking crisis, the rest of the world may be indirectly impacted too.

Tags: imports, commodity prices, shortage, markets, CPO, banking crisis, Maybank Investment Bank, exports, Crude palm oil