Still cautious on sustainability of CPO price
KUALA LUMPUR: Analysts remained cautious over the sustainability of crude palm oil (CPO) prices given uncertainties in the market such as the Covid-19 pandemic.
CPO prices has seen some recovery from the year-to-date low in May 2020 of RM2,000 per metric tonne (MT) to the current level of RM2,800 to RM2,900 per MT.
The higher prices are partly attributable to the increase in demand for palm-oil products due to stock replenishment, lower palm-oil inventory levels, an increase in soybean oil prices and weather uncertainties, aid the team at Affin Hwang Investment Bank Bhd (AffinHwang Capital).
“However, given that Covid-19 pandemic is still evolving globally, uncertainties remain in the market amid a potential rise in stock levels at producing countries, we are cautious on the outlook for the fourth quarter of 2020 (4Q20),” the research firm said, maintaining its CPO average selling pricee (ASP) assumption for 2020 and 2021 estimates at RM2,350 to RM2,450 per MT.
On the other end, Researchers at MIDF Amanah Investment Bank Bhd (MIDF Research) expected CPO prices to trend lower.
“In August 2020, the average CPO spot price increased by 9.4 per cent m-o-m to RM2,818, mainly in view of the possible supply tightness on dwindling inventory level and recovery in export demand as well an anticipation of lower production due to labour shortage issue,” it said in its observations.
“Nonetheless, we believe that the CPO price may retrace moving forward, depending on the quantum of output level during the upcoming peak production and moderated demand as mentioned above. Note that the current futures price which is lower than the spot price indicates a bearish outlook on the CPO price in coming months.”
Historically, MIDF Research observed that there would normally be a downtrend movement in the CPO price in the third quarter of the year in-line with the seasonally peak production period.
“We gathered that historically the CPO price would normally decline as much as eight per cent quarter on quarter in the third quarter of each year, from 2015 to 2018.”
Meanwhile, AffinHwang Capital said the potential appearance of La Nina by year-end was another factor as it brings more rainfall in Southeast Asia, thus potentially slowing down the harvesting process due to the wet weather.
“Based on the US National Oceanic and Atmospheric Administration climate advisory report, the odds of La Nina developing in the fall and lasting through the winter are now higher at 55 to 60 per cent,” it said.