Mixed views on CPO price outlook in 2020
KUALA LUMPUR: The general view on crude palm oil (CPO) prices remain mixed following updates from the Palm Oil Internet Seminar hosted by Bursa Malaysia and Malaysian Palm Oil Council (MPOC) on Monday.
Public Investment Bank Bhd (PublicInvest Research) recapped that majority of the experts view the impact of Covid-19 having a big influence on global palm oil consumption this year.
Industry price forecasts range from RM1,800 to RM2,500 per metric tonne (MT), with consensus forecasts averaging at around RM2,300 per MT.
“Generally, most industry experts have a mixed view on the price outlook this year due to the impact of Covid-19,” it said yesterday. “Positive views are led by the Malaysian Palm Oil Board, who thinks CPO prices could potentially hit RM2,500 this year, driven by the resumption of B20 programme and export tax exemption of CPO, CPKO and RBDPKO.
“On the other hand, the bearish view is led by notable industry expert, Dr James Fry, who predicts that Malaysian palm oil stocks could surge as much as 50 per cent to three million MT mt by year-end.”
“Despite the mixed outlook by most speakers, PublicInvest Research noticed that their views on the key driver for palm oil price movement largely hinged on oil price movements (as it plays a vital role in biodiesel demand) and the prolonged impact of Covid-19 (as slow economic recovery could be a drag on palm oil demand).
“Looking at average CPO price of RM2,300/mt for 2020. We see CPO prices staying in the range of RM2,200 to RM2,300 per MT for the 2H given the higher inventory levels due to the seasonally higher production level.
“Given the lack of re-rating catalysts, we have a neutral call on the sector.”
Similarly, AmInvestment Bank Bhd (AmInvestment Bank) also remained neutral on the plantation sector as it believed that there was a balance between the positive and negative factors.
“Although palm demand from India and China is improving, this is expected to be offset by climbing palm production in Malaysia and Indonesia in the second half of 2020,” it said in its own sector outlook.
“We would turn positive on the plantation sector if palm inventory declines. Generally, palm production declines when unfavourable weather affects fresh fruit bunch (FFB) yields.
“We believe that the surge in industry CPO production would be robust in 2H compared with 1H as FFB yields are expected to recover.
“We also think that compared with 2H19, industry CPO output would be healthy in 2H20. Recall that the palm industry in Malaysia and Indonesia suffered haze an drought in 3Q19, which affected output in 3Q19 and 4Q29.
“In other corporate updates, the implementation of B20 has been postponed.
“Implementation of B20 in Sabah will only start on January 1, 2021 instead of August 2020 previously. B20 in Sarawak will commence on September 1, 2020 versus April originally, while in Peninsular Malaysia, B20 will only be implemented in June 2021.
“Apart from Covid-19, we think that B20 was delayed in Malaysia as more subsidies are needed.”
Also, Malaysia’s Human Resources Ministry also announced that there will be a freeze on foreign labour recruitment in all sectors until year-end. This is to give way to the usage of local labour due to the current high unemployment rate in the country.
“This is definitely a big hit to the labour-intensive plantation sector as foreign labour makes up nearly 84.1 per cent of the total work force,” it said. “Majority of them are harvesters and collectors (38 per cent) as well as field workers (33 per cent), considered as “tough” jobs for the locals.”