Analysts upbeat on plantation sector with higher production, price

KUCHING: Analysts remain positive on the plantation sector on the expectations of recovery in crude palm oil (CPO) production and higher CPO price in the near future despite the lower inventory level registered last month.

The research arm of Kenanga Investment Bank Bhd (Kenanga Research) in a report yesterday said it remains positive for the plantation sector in the nearterm.

The research firm estimated that the CPO price will trade in the range of RM2,900-RM3,330 per metric tonne (MT) in the first quarter of 2017 (1Q17) adding that for the full year of 2017, the CPO price will average around RM2,550 per MT.

Thus, Kenanga Research expects CPO prices to recover gradually on production weakness while the market may temporarily turn negative on a continued increase in monthly inventory.

Apart from that, the research firm believed external factors remain supportive for the industry, especially a stronger US dollar, better CPO prices and sustained soybean oil prices in spite of production pickup in December 2016.

Additionally, Affin Hwang Investment Bank Bhd ( Affin Hwang) in another report said CPO production in December 2016 was up from a year earlier for the first time in 12 months, rising by 5.3 per cent year-on-year (y-o-y) to 1.47 million MT, as production improved in Peninsular Malaysia and Sarawak but partially offset by the decline in production in Sabah.

The research firm observed the fresh fruit bunches (FFB) yield for Peninsular Malaysia and Sarawak increased by 9.5 per cent and 1.6 per cent y-o-y respectively to 1.38 MT per ha and 1.30 MT per ha while FFB yield in Sabah declined by 9.2 per cent y-o-y to 1.39 MT per ha.

Meanwhile, Affin Hwang noted total CPO production in 2016 declined by 13.2 per cent y-o-y to 17.32 million MT and slightly below Oil World’s 2016 forecast for Malaysian palm oil production of 17.35 million MT.

The research firm also noted palm oil exports declined by 14.6 per cent y-o-y in December 2016 as main importers such as India and the European Union (EU) bought less but partially mitigated by higher palm oil exports to China, Pakistan and Turkey.

Affin Hwang observed that exports to India and EU declined by 47.4 per cent and 34.9 per cent y-o-y respectively, while exports to China, Pakistan and Turkey increased by 68.3 per cent, 39.5 per cent and 76.3 per cent, y-o-y respectively.

Moreover, the research firm observed in 2016, total palm oil exports declined by 8.1 per cent y-o-y to 16.05 million MT.

Nonetheless, it noted palm oil inventory in December 2016 was at 1.67 million MT, the highest level in the past five months but much lower than the previous year’s ending stock of 2.63 million MT.

Citing data from Intertek, a palm oil export data provider, the research arm of Public Investment Bank Bhd (PublicInvest Research) in a report yesterday said for the first 10 days of January 2017, Malaysia’s CPO exports rose by 8.1 per cent from a month earlier.

Thus, the research firm opined that the CPO export duty is likely to be raised from seven per cent to 7.5 per cent for the month of February 2017 observing Malaysian Palm Oil Board’s (MPOB) reference price from December 9, 2016 to January 10, 2017 of RM3,230 per MT.

On another note, PublicInvest Research highlighted that CPO price ended last year at RM3,241 per MT, the highest closing since 2012.

It observed that CPO price averaged at RM2,651 per MT, topping consensus estimates of RM2,450 per MT, which was also significantly higher than 2015’s average of RM2,168 per MT.

At the same time, the research firm noted the average CPO price for December 2016 was around RM3,209 per MT, roser more than 10 per cent from November 2016’s average of RM2,914 per MT.

All in all, analysts remained optimistic on the outlook of the plantation sector for 2017.