Analysts neutral on planters despite improving CPO prices
KUCHING: Analysts generally maintained a ‘ neutral’ rating on the plantation sector despite improving crude palm oil (CPO) prices and a slight improvement in CPO inventory.
MIDF Amanah Investment Bank Bhd (MIDF Research) yesterday projected that the inventory level is expected to continue to diminish further decline albeit at a slower pace.
“We opine that the improvement in export demand and domestic consumption at the moment weren’t enough to offset the higher output and supply in the market.
“In addition, demand from India (Malaysia’s biggest palm oil export market) could be affected by the expected high domestic supply of rapeseed in India) of about 8.5 million tonnes in 2018 to 2019 which will potentially limiting its overseas purchases.
“Coupled with record high soybean production, these would be considered limiting factors towards the CPO price movement as well,” it opined in a report.
However, it pointed out that the palm oil trade developments between Malaysia and China seem to be promising at this juncture as deals could potentially raise the level of palm oil export share to China.
“Domestically, the biodiesel mandate for the transportation and industrial sectors might support the CPO domestic,” it added.
Meanwhile, Public Investment Bank Bhd’s research team ( PublicInvest Research) noted that the plantation sector’s exports saw encouraging growth.
“CPO exports rose 22.4 per cent m-o-m to 1.61 million mt, led by a strong demand from China (113.6 per cent) and Pakistan (67 per cent), which was partly offset by weaker exports to India (down 15.7 per cent), India (down 23.9 per cent) and US (down 15.7 per cent),” it added.
“Interestingly, despite the poor perception of palm oil in EU, the western region has shown a positive demand this year with an increase of 5.9 per cent y-o-y for the first three months. Spain and Italy, the two of the top three largest consumers from EU, have upped their demand by 55 to 108 per cent this year,” the research team highlighed.
Domestically, PublicInvest noted that CPO production registered a decent 8.2 per cent m-o-m growth to 1.67 million mt as production in Peninsular Malaysia and East Malaysia grew 10 per cent y-o-y and six per cent, respectively. It is also the first positive growth since the production peaked in October 2018.
“Domestic consumption also improved. Following the implementation of B10 biodiesel programme for transportation sector since Feb as well as stronger demand ahead of Hari Raya celebration, domesticconsumption climbed to 327.4 million mt, a massive increase of 75 per cent y-o-y.
“Meanwhile, riding on the advantage of Palm Oil-Gas Oil spread (POGO), biodiesel exports rose to a new record level of 83.7 million mt, soaring 79 per cent YTD,” it added.
On another note, Kenanaga Investment Bank Bhd’s research arm(KenangaResearch)anticipate demand of 1.97 million MT to outstrip supply of 1.83 million MT in April 2019, leading to lower ending stocks of 2.78 million MT (down 4.8 per cent m-o-m).
“In the near term, potential positives for the sector are; further clarity on new biodiesel initiatives ( B30 in Indonesia and B20 in Malaysia), higher exports to China given its pledge to buy 50 per cent more palm oil from Malaysia, and slowing production in Indonesia as palms take a rest post-bumper harvest.
“Premised on these potential developments, we reiterate our 2019 CPO price forecast of RM2,400 per MT ( compared with YTD average of RM2,005 per MT), representing a seven per cent increase from RM2,235 per MT in 2018.”