CPO prices come under pressure
Analysts say rising inventory and stronger ringgit among factors
PETALING JAYA: The rising palm oil inventory and the strengthening of the ringgit will likely exert pressure on crude palm oil (CPO) prices moving forward.
Given the expectation of palm oil weakness this year, analysts are “neutral” on the plantation sector.
In its published note, UOB Kay Hian Malaysia Research said that Malaysia’s palm oil inventory has increased to 2.73 million tonnes last December – the highest since Nov 2015.
The palm oil stockpile has been rising for six consecutive months, mainly on the back of export volume being lower than CPO production.
The latest palm oil inventory has exceeded Bloomberg consensus estimate of 2.69 million tonnes.
“Full-year 2017 CPO production came in higher than market expectations at 19.92 million tonnes and on a par with 2015’s level, mainly supported by more mature areas.
“Exports grew marginally year-on-year (y-o-y) in 2017, mainly due to stronger exports to Pakistan and Japan, up by 15.5% y-o-y and 10.1% y-o-y respectively. However, exports to India fell 28.4% y-o-y.
“In December 2017, the marginal increase in exports was above market expectations,” said the research house, adding that exports are likely to be stronger in the first quarter of 2018.
On CPO price forecast, UOB Kay Hian expected the average CPO price to hover around RM2,400 per tonne this year.
Last year, CPO prices increased by nearly 4.9% y-o-y to RM2,783 per tonne on average, above the research house’s expectation of RM2,600 per tonne.
Meanwhile, Kenanga Research also projected CPO prices to remain flat this year despite optimism on the recent suspension of palm oil export duty.
“We expect CPO price impact to be flat as potentially better demand is offset by the strengthening ringgit and recovering production.
“We update our first quarter CPO price trading range to RM2,370-RM2,575 per tonne, from RM2,400-RM2,620 per tonne previously.
“No change to our CPO price forecast of RM2,400 per tonne for this year.
“The plantation sector’s full-year outlook remains weak on production resurgence,” said the research firm.
The Government has announced the suspension of export taxes on crude palm oil for a three-month period since Jan 8.
The move is aimed at boosting CPO prices and reduce high stockpiles.
Contrary to most research houses, MIDF Research has a positive stance on the plantation sector, as it expected a stronger average CPO price at RM2,900 per tonne.
“We reiterate positive view on the sector due to improved demand outlook for palm oil in 2018.
“We also think that the supply growth may not be fully realised due to ongoing labour shortage and the high replanting activity planned by major plantation companies,” stated MIDF Research.
As of close of trading yesterday, most plantation stocks on Bursa Malaysia were little changed, given the generally-down bourse’s intra-day performance.
IOI Corp Bhd and Genting Plantation Bhd remained unchanged at RM4.67 and RM10.60 respectivelt.
Sime Darby Plantation Bhd was down by three sen at RM5.52, while Felda Global Ventures Holdings Bhd was down one sen at RM2.04.
Kuala Lumpur Kepong Bhd inched up by two sen to RM25.12.