Likely drag on CPO prices

Reinstatement of export tax and rising supply raise concerns

PETALING JAYA: The reinstatement of the crude palm oil (CPO) export tax and concerns over rising supply will likely drag CPO prices further in the nearby months, say analysts.

Malaysia has set a 5% tax on CPO export this month after a fourmonth suspension. The tax was calculated based on the palm oil reference price of RM2,409.66 per tonne for May. Any price above RM2,250 incurs a tax.

The earlier suspension saw the export tax differential between processed palm oil (refined products) and CPO at zero in Malaysia compared with US$20-US$30 per tonne export levy differential for Indonesian palm oil refiners.

“This measure helps encourage CPO exports from Malaysia, which have been weak following India’s move to raise import duties on palm oil.

“However, it has not been able to significantly lift CPO prices due to the stronger ringgit and rising palm oil stocks,” said analysts.

As at 5pm last Friday, the third-benchmark CPO futures contract for July was trading at RM2,345 per tonne. This compared with the average CPO price of RM2,418 per tonne in April.

According to CIMB Equities Research, CPO is projected to trade between RM2,300 and RM2,500 per tonne this month and average at about RM2,700 per tonne in 2018.

“The anticipated lower palm stockpile for April is neutral for CPO prices, but will be offset by the higher export tax for CPO from Malaysia in May and concerns over rising supply in the coming months,” said the research unit in a report.

Meanwhile, the Malaysian Palm Oil Board is expected to release the latest palm oil statistics for April on Thursday.

CIMB Equities noted that findings from a survey of 23 plantation areas by the CIMB Futures team revealed that the local CPO output would likely grow 1.6% month-on-month (m-om) to 1.6 million tonnes in April.

In addition, exports would likely fall about 5.1% m-o-m based on export statistics released by cargo surveyers, Societe Generale de Surveillance (SGS) and Amspec Malaysia.

“Overall, we estimate that the Malaysian palm oil inventory may have declined 2% m-o-m to 2.28 million tonnes as at end-April 2018,” it added.

The research unit also projected a 2% m-o-m rise in the CPO output, which is lower than the historical April average m-o-m increase of 4.3% over the past 10 years.

“We attribute the lower-than-historical average m-o-m rise in output to replanting efforts by estates.

“Our survey revealed that estates in Sabah posted weaker m-o-m production, but this was offset by higher production from Sarawak.

“We also estimate that local palm oil exports would fall about 5% m-o-m in April 2018, based on estimates from SGS (-4.5%) and Amspec Malaysia (-5.7%).

“The m-o-m decline in exports in April was due mainly to weaker demand from India (-39% m-o-m) and the US (-5% m-o-m), although this was partially offset by stronger demand from China, Europe and Pakistan,” it added.

CIMB Equities Research’s top regional picks were Genting Plantations Bhd, Wilmar International Ltd and First Resources Ltd.

It said: “We like Genting Plantations for its rich landbank and young estates. The group has one of the youngest estate age profiles compared with its big peers in Malaysia.”