ROOM FOR EXTENDED RALLY
CRUDE palm oil prices are likely to increase further amid lower inventories, stronger exports and a decline in production, say analysts.
LOCAL crude palm oil prices (CPO) have more room to extend their rallies after inventories showed a surprise drop last month on stronger than expected exports and declining monthon-month production.
Analysts said the supply would continue to tighten this month to hit 2.35 million tonnes from 2.55 million tonnes as of end of last month on lower production, thereby hinting a trend of rising CPO prices.
They said this would create buying opportunities for plantation stocks like IOI Corp Bhd, Kuala Lumpur Kepong Bhd, Genting Plantation Bhd, TSH Resources Bhd, Ta Ann Holdings Bhd and Fima Corp Bhd, to ride on the sector’s positive outlook this year.
The palm oil futures for April delivery settled 1.18 per cent lower to RM2,513 yesterday.
MIDF Research plantation analyst Alan Lim said exports came in stronger than expected with six per cent growth month-onmonth as the temporary suspension of CPO export tax priceon January 8 lifted demand from major buyers such as India and Pakistan.
The drop in inventories was the first in seven months, beating market forecast of 2.73 million tonnes, he added, with inventory level declining seven per cent as export grew six per cent and production dropping by 13.5 per cent.
“We gather that the exports to India jumped 35 per cent monthon-month to 202,000 tonnes while exports to Pakistan were up by 20 per cent to 101,000 tonnes.
“We believe these price-sensitive countries have increased their purchase to benefit from the recent suspension of CPO export tax by the government,” said Lim in a research note.
“We believe demand would continue to be supported by rising global demand as the winter has ended in the Northern Hemisphere. This should lead to higher palm oil usage,” he added.
Lim expects this month’s inventory to drop eight per cent to 2.35 million tonnes.
He reiterated MIDF Research’s positive outlook due to improved demand for palm oil this year.
“We believe the economic growth this year should lead to higher consumption per capita. On the supply side, consensus estimate of huge supply growth may not be fully realised due to ongoing labour shortage and the higher replanting activities in Indonesia,” said Lim.
“Note that Indonesia plans to replant up to 165,000 hectares of oil palm plantation land this year. This could cause supply to decline by 500,000 tonnes assuming oil yield of three tonnes per hectares,” he added.
Rakuten Trade head of research Kenny Yee said lower inventory would lead to firmer CPO prices in the future.
“However, I believe the price of its rival (soya) would have a more meaningful impact,” he added.