CPO stockpile likely to remain low in coming months despite high inventory

Despite seeing a four-month high in palm oil inventory level in March, analysts forewarn of low stockpile level in coming months due to labour shortage and higher demand from other countries.

To note, Malaysia’s March 2021 palm oil inventory increased by 10.7 per cent month on month (m-o-m) to 1.45 million metric tonnes (MT). However, on year-on-year (y-o-y) basis, the stockpiles plunged by 16.3 per cent y-o-y on the back of lower opening stock of 1.32 million MT.

“Despite higher volume of export demand in March, the level of inventory still recorded higher volume,” observed the team at MIDF Amanah Investment Bank Bhd (MIDF Research). “The increase in inventory level in the previous month was predominantly attributable to higher CPO production, and higher palm oil imports.

“In the intermediate term, we expect inventory level to stay below the two million level in view of the slower production period, but further down, we expect stockpiles to show further improvement on the back of production recovery amid higher production cycle.”

The research division at Hong Leong Investment Bank Bhd (HLIB Research) shared the same view, believing that CPO stockpiles will likely remain low in coming months, due to labour shortage, higher palm oil demand from China and low edible oil stockpile in India.

“We maintain our recently revised CPO price assumptions of RM3,200 per MT for 2021 and RM2,800 for 2022-23. We believe CPO price will remain elevated at above RM3,500 per MT mark in the second quarter of 2021 (2Q21) and trend down more noticeably in 2H21, on the back of better soybean supply outlook, seasonally stronger palm oil output in 2H21.

“Besides, we believe a pullback in demand (which will pull prices of edible oil downwards) when supply recovery kicks in.”

As for MIDF Research, it retained its positive outlook with a 2021 CPO target price of RM3,000v per MT.

This was based on its view that the existing landscape will lead to a strong increase in CPO price.

“We are anticipating tight soybean supply, especially from Argentina, to lead to stronger soybean price which in turn, should drive CPO selling price higher,” it added.

“On top of that, the subdued inventory level of palm oil in Malaysia would also act as a catalyst to CPO price. We expect the inventory level to stay below the two million level in view of the slower production period.

“We also believe the palm oil supply tightness situation will likely remain until 2QFY21, given the weaker output during the post-peak production. Nonetheless, we expect the production to recover in 2HFY21, though below potential, given Malaysia’s high reliance on foreign workers.”