‘CPO price should hold at RM4,000 per tonne in 1Q’

KUCHING: The price of crude palm oil (CPO) is likely to stay supported at current level of RM4,000 per tonne till the end of the first quarter of 2023 (1Q23) as palm oil production is presently in its low output cycle.

In addition to that, ahead of the Ramadhan and Eid holidays demand, the Indonesian government recently introduced several measures to ensure sufficiency of cooking oil within Indonesia.

MIDF Amanah Investment Bank Bhd (MIDF Research) saw that in January, the local CPO delivery price started the year marginally higher at RM4,165.50 per tonne, but averaged monthly lower at RM3,922 on better-than-expected output numbers.

“Currently the discount parity between Malaysian and Indonesian CPO prices is US$427.7 per metric tonne (MT), with a three-year average of US$246.2 per MT,” it said in a sectoral.

“On a side note, Indonesian prices were traded narrower discount to Malaysia due tighten export rules for PO in move aimed at ensuring sufficient domestic supply.

“Overall, we expect Malaysian local delivery prices to be lower in 2023, ranging between RM3,000 and 4,000, on expectation of normalisation closing stocks of two to 2.1 million tonnes.”

MIDF Research further expect CPO price to trade in a volatile manner from February to March at circa RM3,500 to RM4,000 per MT, benefiting from price disparity between CPO against soybean oil price which to date amounted to US$445 per MT and three years average of US$246.2 per MT, based on three-months future price.

“However, we also recognise its downside risk on fragile demand outlook on the back inflationary pressure coupled with tight household spending on high base interest rate locally; and globally, another Indonesian extension of zero-levy policy for PO exports in 2023.

“All factors considered, we maintain our neutral stance on the sector with CPO target price of RM3,500 for 2023.”

Maybank Investment Bank Bhd (Maybank IB Research) saw that due to Indonesia’s latest measures, the availability of global supply of palm oil will inevitably be relatively more restricted.

“These measures will provide support to global CPO prices until such restrictive measures are loosened after Ramadhan.

“Across the Pacific Ocean, ongoing drought in Argentina (Arg) – the world’s third largest producer of soybean after Brazil and the US, has led to a slew of cuts in soybean harvest forecast the past week.

“US Department of Agriculture cut Argentina’s 2022/2023 soybean forecast to 41 million tonnes, Buenos Aires grain exchange cut its forecast to 38 million tonnes, and Rosario grains exchange lowers its forecast to 34.5 million tonnes.

“The poorer soybean prospects will surely help prop up CPO price in the short term.”