CPO prices drop further

Analysts expect plantation players to be hit in the fourth quarter

PETALING JAYA: As crude palm oil (CPO) prices continue to slide, pressured by rising stockpiles and production as well as slowing exports, analysts warn that plantation players will be hit going into the fourth quarter.

The CPO price for November’s delivery has fallen RM15 to RM1,865 per tonne and the benchmark futures contract closed down RM6 at RM2,034 per tonne yesterday – its lowest since September 2015.

CIMB Investment Bank Bhd’s regional head of plantations research, Ivy Ng, said local plantation players who are struggling in the low price environment would see their performance being further impacted in the fourth quarter if prices persist at current levels.

“CPO futures are still slightly above the RM2,000 mark, but if you look at spot prices, they have already fallen below RM2,000.

“This is a concern for planters, going into the fourth quarter, because if this price sustains, they will be seeing lower prices than achieved in the third quarter,” she said.

Ng, who expects CPO prices to average at about RM2,320 for the year, said there was even a downside risk to this forecast due to the slide in prices of late.

“Moving forward, we expect the CPO price to be range-bound between RM2,000 and RM2,300,” she told StarBiz.

Among those already feeling the pinch is plantation player IOI Corp Bhd, which saw its net profit for the quarter ended Sept 30 falling 60% on the back of cheaper selling prices.

The group, in its filing with the stock exchange, said it expects its performance to be impacted further in the upcoming quarter.

“With the lower palm oil price, the plantation segment’s financial performance for the second quarter of the financial year 2019 is expected to be lower than the previous quarter,” it said.

According to the statistics released by the Malaysian Palm Oil Board, total palm oil stockpiles rose 7.63% month-on-month to 2.72 million tonnes in October, as CPO production climbed 6.01% to 1.96 million tonnes.

Palm oil exports, meanwhile, fell 2.97% to 1.57 million tonnes from 1.61 million tonnes in September.

The fall in exports, however, was much lower than analyst expectations.

Ng said that while the output numbers for October were as they had forecast, following a survey of 18 plantation areas by the CIMB Futures team last month, the export figures had come in much stronger than expected.

This, she said, was likely due to issues related to the timing of shipments.

“However, even with the export numbers coming in stronger than expected, we don’t think it will move CPO prices significantly.

“While the stockpile for the month is lower than expected, it remains high from a historical perspective,” she said.

Ng added that the export numbers for the first 10 days of October, based on data from cargo surveyors, showed a drop compared to the same period in September.

This, she said, showed that demand remained muted even though price-wise, it has come off further than where we were about a month ago.

Demand for palm oil has been impacted by several factors, notably due to the Indian rupee weakening against the US dollar, which has impacted the purchasing power of the world’s biggest vegetable oil importer.

India also raised the import tax on CPO to 44% from 30% earlier this year, while the tax on refined palm oil was lifted to 54% from 40% in a move to support its local farmers.

“India is our biggest customer, and due to these factors, we have to adjust our prices lower in order to ensure they continue to buy from us,” said Ng.

She added that the high stocks of palm oil, as well as its rival soybean oil, meant that buyers were comfortable and in no hurry to buy.

“So, we see prices being pressured to attract additional demand for palm oil.

“The only supporting factor at this moment is the country’s biodiesel mandate, and efforts to use biodiesel to replace diesel in countries like Indonesia, but this will take time,” she said.

The Malaysian government recently announced that it would implement a 10% palm oil blending rate (the B10 programme) for biodiesel used in the transportation sector and a 7% rate for biodiesel in the industrial sector.

Fitch Ratings said in a statement that it sees these initiatives as positive to support the local palm oil industry in the long term.

“However, the impact is likely to be limited on overall demand and the CPO price in the short term,” it said.