CPO production this year to peak in October, November
KUCHING: The plantation sector’s crude palm oil (CPO) production has been projected by analysts to likely peak in either October or November.
From the research arm of Kenanga Investment Bank Bhd’s (Kenanga Research) channel checks with planters, it gathered that the adverse effect of El Nino and La Nina has largely subsided.
“Therefore, production is likely to continue picking up in the coming months through November,” Kenanga Research said.
“As such, we forecast October output to increase three per cent month on month (m-o-m) to 1.91 million MT, and subsequently peak at about two million MT in November.
“Note that we are projecting weaker growth momentum as September has marked the third consecutive month of increase.”
Meanwhile, Affin Hwang Investment Bank Bhd’s (AffinHwang Capital) believed Malaysia’s CPO production this year will likely peak in October or November and the 2018 CPO production will likely be slightly lower than 2017’s total CPO production of 19.92 million metric tonnes (MT)
The research firm noted that the Oil World forecast for Malaysia CPO production in 2018E was at 19.8 million MT.
On CPO prices, AffinHwang Capital expected it to trade higher than current levels of about RM2,100 per MT, as it believed global production growth for palm oil is likely to slow down towards year-end with the monsoon season.
“We expect demand to remain healthy going forward, underpinned by exports and domestic consumption for the food and energy industries,” the research firm said.
Factoring in a CPO average selling price (ASP) of RM2,100 to RM2,400 per MT in the second half of 2018 (2H18), Affin Hwang forecasted a 2018 average CPO price of RM2,350 per MT, compared to 2017 CPO ASP of RM2,783 per MT.
The research firm’s CPO ASP assumptions for 2019-2020 are RM2,400 to RM2,500 per MT.
As for Kenanga Research’s view on CPO price, the research arm expected to see meaningful improvements in the near term.
It noted that this will be fuelled by rising demand for alternative vegetable oils from China, Indonesia’s extension of B20 mandate and increasing discretionary blending of biodiesel in the European Union (EU) amid a steep CPO-to-gasoil discount at circa US$218 (versus one-year average of circa US$22) currently.
“We opine that these factors would overshadow the prospective production pick-up in coming months in the determination of CPO price.”
Kenanga Research believed the downside to CPO prices is limited at RM2,000 per MT (based on smallholders’ cost of production) while upside is capped at RM2,550 per MT, based on US$60 per MT discount to competing soybean oil (SBO).