‘CPO price should bottom at RM2,000 per MT'
KUCHING: Analysts at MIDF Amanah Investment Bank Bhd ( MIDF Research) believe the prices of crude palm oil (CPO) should likely bottom at RM2,000 by the year end.
This comes as specialist Dorab Mistry opined that the price of crude palm oil (CPO) will decline to a low of RM1,900 per metric tonne (MT) by end-September due to higher than expected increase in CPO output and weaker effects from El Nino as compared to the, past.
MIDF Research noted that Mistry is revising higher his estimate for Malaysia’s CPO production to 20 million MT while Indonesia’s production is expected at 32 million MT.
“On the high production mentioned by Dorab Mistry, we believe that Malaysia CPO production should remain flat year-on-year in 2015 at 19.7 million MT. This is due to the dry season in Sabah from February to April this year.
“As a result, fourth quarter 2015 (4Q15) CPO production should be affected and this should keep production growth limited,” it said.
Note that palm oil trees usually produce less Fresh Fruit Bunches (FFB) between six to nine months after a dry spell.
MIDF Research went on to note that El Nino has no impact to CPO price since it was announced in May-2015, hence it is expected to be immaterial to CPO price in the near term.
The research house also believed that the market did not factor in the El Nino impact since May due to many false signals in the past.
“Recall that Australia Bureau of Meteorology confirmed the El Nino event on May 12, 2015 at the time in which CPO price was at RM2,225 per MT. Since then, we notice that CPO price did not appreciate significantly and has actually declined in the first one week after the news.
“As a result, we believe that the weaker El Nino effect as mentioned by Dorab Mistry is unlikely to cause downward reaction to CPO price,” MIDF Research said.
Soybean oil price may have bottomed as USDA is estimating 30.5 to 33.5 US cents per pound. The latest soybean oil price at less than 30.5 US cents per pound is already below USDA estimate of 30.5 to 33.5 US cents per pound.
Additionally, it has declined 10 per cent year to date possibly due to higher soybean oil inventory globally. As global soybean oil inventory is only expected to inch up by four per cent on year, the research house believe that most of the negative news should have been priced in.
“Our average CPO price for both 2015 and 2016 are unchanged as we think that CPO price is likely to have found its bottom at RM2000 per MT. For the rest of the year, we expect CPO price to range between RM2,000 per MT to RM2,250 per MT.
“Despite our positive view on CPO price, we expect the upcoming quarterly result to be lower year-on-year for most planters in line with lower CPO price in 2Q15 against 2Q14.”