Analysts keep neutral rating on plantation stocks

PETALING JAYA: Plantation stocks continue to attract a neutral rating from analysts, who see limited downside to crude palm oil (CPO) prices in the near future despite rising inventory levels and weaker exports.

CPO stockpiles rose for the fifth consecutive month in November, gaining 16% to 2.56 million tonnes, the highest level since December 2015.

Analysts expect stockpiles to continue rising in the near term and exports to remain weak due to the stronger ringgit and slow demand from India.

Kenanga Research forecasts stockpiles will rise another 5% to 2.68 million tonnes in December 2017.

With production set to decline and exports continuing to be weak, it expects stocks to far exceed the 2 million tonne mark for the time being.

However, it sees minimal downside to CPO prices at this level and has kept the financial year 20172018 CPO price forecast at between RM2,700 and RM2,400 per tonne.

“We maintain our neutral outlook for the sector as we think that despite a rising stock outlook, CPO price downside is limited at this juncture, having corrected against soybean oil prices and being supported by high- er crude oil prices,” it said.

CIMB Research noted that Malaysia’s palm oil stocks in November came in higher than expected due to lower-than-expected exports and this was a near-term negative for CPO prices.

Palm oil exports fell 12% monthon-month to 1.35 million tonnes in November, mainly due to India’s move to raise the import duty to 30% from 15% and to 40% from 25% for refined palm oil.

The research house expects palm oil stocks to increase 8% month-onmonth in December to 2.76 million tonnes amd production for the month to fall due to disruptions in harvesting activities.

It also expects exports to fall 5% due to weaker demand.

CIMB Research expects weak CPO prices in the near term due to higher stockpile. Prices could recover in the first quarter of 2018 as demand recovers ahead of the Chinese New Year.

It expects CPO price to average RM2,800 per tonne for 2017 and RM2,700 per tonne for 2018.

UOB KayHian Research, meanwhile, has maintained an underweight stance, expecting significant CPO price weakness going into 2018, brought about by an oversupply by mid-2018.

“Moreover, ample soybean supply in the market is likely to pressure soybean prices, in turn capping palm oil prices,” it said.