‘NEUTRAL’ FOR PLANTATION SECTOR

There is no notable demand catalyst, says HLIB Research

CRUDE palm oil (CPO) price is expected to start tapering off with the commodity’s seasonal output recovery. Hong Leong Investment Bank Bhd (HLIB Research) said in a note CPO price had averaged at RM4,062 per tonne year-to-date.

Nevertheless, the research firm has maintained its CPO price assumptions for this year and next year at RM4,000 and RM3,800 per tonne, respectively.

“Palm oil stockpiles are expected to resume its uptrend from this month.

“However, exports are expected to weaken due to the absence of festive-driven demand and palm oil’s weak price competitiveness against other competing oils.”

It said the price difference between palm oil and soyabean oil narrowed to US$89 per tonne, down from the six-month average of US$245 per tonne.

The research firm has maintained its “neutral” stance on the plantation sector due to the lack of notable demand catalyst.

Its top picks are IOI Corp Bhd (“buy” call and RM4.66 target price) and Hap Seng Plantations Holdings Bhd (“buy ” call and RM2.06 target price).

Palm oil stock level fell for the fifth consecutive month, by 10.7 per cent month-on-month to 1.72 million tonnes in March, the lowest since May last year. This is as seasonally strong exports demand more than offset higher output.

The stockpile came in lower than 1.76 million tonnes estimated in a Bloomberg survey, due mainly to stronger-than-expected exports.

Palm oil production resumed its uptrend — for the first time since October last year — rising by 10.6 per cent month-on-month to 1.39 million tonnes in March.

Cumulatively, production in the first quarter of the year increased by 3.4 per cent year-onyear to 1.05 million tonnes, with fresh fruit bunch yield and oil extraction rate rising to 3.5 tonnes per hectare and 19.66 per cent, respectively.

This is up from 3.35 tonnes per hectare and 19.52 per cent in the same period last year.

This improvement is attributed mainly to the enhanced availability of labour, said HLIB Research.

It noted that exports recovered for the first time since October, rising by 28.6 per cent month on month to 1.32 million tonnes in March, boosted by stronger demand ahead of Ramadan and Hari Raya Aidilfitri.

In March, the sharp increase in exports was driven mainly by higher exports to India, Africa and Asia Oceania, according to Intertek Services.

Cumulatively, exports in the first quarter of the year declined marginally by 1.6 per cent year-onyear to 3.69 million tonnes, due mainly to lower exports to China.

Intertek Services indicated that Malaysia’s palm oil shipment increased by 12.7 per cent month on month to 431,200 tonnes in the first 10 days of this month, led mainly by higher exports to Asia Oceania, the European Union and India.

CIMB Securities also anticipated palm oil supplies would remain tight this month due to fewer working days and a reduced workforce during the Aidilfitri holidays.

This combined with higher use of palm oil for biodiesel in Indonesia is likely to keep palm oil export supplies tight this month.

“We project palm oil stocks to fall by 13 per cent month-onmonth in April.

“We are of the view that palm oil stocks could bottom out in April before rising in May due to the seasonal rise in palm oil supply and stiff competition from other edible oil substitutes (currently traded at a discount to palm oil).

“However, competition with sunflower oil from the Black Sea region could ease slightly in the near term due to higher shipment costs to transport them to Asia owing to the threat of Houthi attacks,” it added.

CIMB Securities said palm oil supply could fall short of expectations in the second half of the year due to lower rainfall since late January and the outbreak of sooty mould and mealybugs in Sabah plantations.

This can cause up to 30 per cent decline in fresh fruit bunch es yields for the affected area.

It said the anticipated transition from El Niño to La Niña — with a 60 to 80 per cent chance of development in the second half of the year — and the capacity to recruit foreign workers amid a current shortage of 40,000 workers, would be crucial factors.

CIMB Securities has maintained its average CPO price forecast at RM3,900 per tonne.