Palm oil stocks to breach 2 million tonnes

Benchmark expected this month

PETALING JAYA: Palm oil stockpiles are expected to breach the two-million tonne psychological level this month after steadily rising over the past four months.

Inventories of palm oil climbed 8.8% month-on-month to close at 1.94 million tonnes in August, the highest level since March 2016.

Analysts have largely maintained their “neutral” outlook on the plantation sector as the inventories continue the upward trend this month.

PublicInvest Research, which sees CPO prices falling below RM2,500 per tonne over the next few months, believes the inventory level will breach the psychological level this month.

“The twin effects of increasing inventories coupled with the weakening of the US dollar index will likely to exacerbate the downward pressure on CPO prices,” it said in a note. The research house, which has a “neutral” outlook on the sector, said its preferred stocks were Genting Plantations, Sime Darby and Ta Ann.

Kenanga Research expects CPO supplies in September at 1.95 mil- lion tonnes to outstrip demand at 1.79 million tonnes, leading stockpiles to close above the two-million tonne psychological barrier at 2.1 million tonnes.

The research unit maintained its neutral sector call with an unchanged FY17 CPO price of RM2,550 per tonnes and a slightly wider CPO trading range of between RM2,500 and RM2,750 per tonne in the third quarter.

“While we anticipate further price volatility in the coming months, we maintain our overall neutral outlook as we expect to see solid earnings improvement among planters on higher year-on-year CPO prices and better production.

“Although we expect sluggish interest in planters in a declining price environment, earnings-wise, we believe big caps with downstream facilities such as IOI Corp and PPB Group through its associate Wilmar, should benefit from lower input costs,” it said.

CIMB Research, meanwhile, expects crude palm oil (CPO) to trade at RM2,500-RM2,800 per tonne this month.

It noted that the average CPO price of RM2,859 per tonne achieved during the first eight months of the year was higher than its FY17 average CPO price forecast of RM2,600 per tonne, as it expects CPO prices to fall when stockpiles recover.

“The key supportive factors for prices continue to be the lower stockpiles in China and higher biodiesel mandates in Indonesia.

“Bearish factors are stronger palm oil output and competition from soybean oil,” it said.

The research house maintained its neutral rating on the agribusiness sector and favours First Resources, Sime Darby and Astra Agro.

MIDF Research, which has an average CPO price estimate of RM2,725 per tonne for both 2017 and 2018, believes there is little downside risk to its estimate.

“We expect CPO price to be well supported at above RM2,700 per tonne throughout the fourth quarter,” it said.