Correction seen in price of CPO in next 3 months

Crude palm oil (CPO) prices, which may have peaked following the Russia-ukraine conflict and Indonesia’s ban on palm oil, could see a correction in the next three months.

Publicinvest Research said in a report yesterday said it saw a potential correction in CPO prices by up to 20% in the next six months.

“Witnessing soaring global vegetable oil prices in the last four months due to the geopolitical tensions in Europe and the recent ban on palm oil exports by Indonesia, we think that palm oil prices have peaked.

“Edible oil prices, which have been soaring since February, could correct by up to 20% if there is no further setback,” it said.

Given that the research house reckons CPO price has reached its peak, it has downgraded its call on the plantation sector to “neutral” from “overweight”.

“In view of the stronger-than-expected CPO price performance for the first half, we raise our CPO price forecast to RM5,000 per tonne for 2022 but maintain our 2023 forecast of RM3,800 per tonne.

“Due to the massive jump in agricultural-related expenses, we believe CPO prices are heading to a higher base, led by cost-push inflation factors as breakeven level for the CPO price will inch higher, going forward.

“Given the rising costs, RM2,200 per tonne to 2,400 per tonne would be the new breakeven level in the future. This would also indirectly push up the long-term average to around RM3,000 per tonne, which is the psychological level for CPO prices,” it said.

The 10-year average for the CPO price is RM2,850 per tonne, which is far from the current level of RM6,400 per tonne.

Meanwhile, Publicinvest Research expects to see gradual production growth towards October as oil palm trees enter a high production season.

“This will help ease the tight inventory concern,” it said.

It is worth noting that palm oil inventories in Malaysia jumped to the highest level in five months in April as production of the world’s second-largest producer is rising.

Besides that, Publicinvest Research reckons Indonesia’s ban on palm oil exports may be short-lived due to the limited capacity of palm oil storage in Indonesia.

On April 28, Indonesia banned the exports of CPO and refined palm oil products to cool down the domestic cooking oil prices.