MIDF Research expects CPO price to moderate in 2Q

LUMPUR: MIDF Research expects crude palm oil (CPO) prices to moderate in the second quarter of 2024 (2Q 2024), yet predicts a month-onmonth (m-o-m) increase of 4.6 per cent to RM4,410.5 per tonne in April due to mild EL-Niño events.

In a note, it said CPO price delivery increased by 7.0 per cent m-o-m to RM4,285.0 a tonne in March, and the monthly average went up 6.7 per cent m-o-m (1.3 per cent year-on-year (y-o-y)) to RM4,215.5 a tonne, riding on EL-Nino premium risks.

“We estimated March’s price to be flattish at RM3,900 per tonne level, however, there is now a concern regarding the potential impact of dry weather conditions on this estimate,” the research house said.

Moving forward, the research house anticipates the CPO price to soften to approximately RM3,946.7 per tonne in May as uneven weather begins to normalise.

MIDF Research also anticipates production will improve in 2Q 2024, ahead of an anticipated mild La-Niña in the second half of 2024 (2H2024).

It said the months of May and June are expected to see a combination of dry and rainy weather patterns which will benefit palm trees as they near the end of their pollination cycle, with estate operations remaining robust, leveraging the enhanced productivity of newly recruited foreign labour.

Malaysia’s CPO production in March 2024 remained decent at 1.39 million tonnes versus 1.29 million tonnes in March 2023, due to contributions from most of the states, particularly in the peninsula area (+19.1 per cent y-o-y) as it benefited from improved foreign labour productivity.

However, it noted that production in Sabah (-9.3 per cent y-o-y) was impacted by the dry weather.

MIDF Research said the fresh fruit bunches received by mills also surged to 7.2 million tonnes with a higher yield of 1.17 tonne per hectare, while the oil extraction rate was muted at 19.80 per cent on low crop seasonality in most of the states.

As such, it has maintained a ‘neutral’ call on the sector, with an average CPO target price of RM3,600 a tonne for the year.

“We deem it is the best time to lock the profits for our top picks such as Ta Ann Holdings Bhd, Kuala Lumpur Kepong Bhd, and IOI Corporation Bhd, as we anticipate the increase in share price will gradually decline towards the end of the quarter, prompting a shift towards a trading strategy,” it said.

Meanwhile, Hong Leong Investment Bank Bhd believe stockpiles will resume their uptrend from April 2024, as production will likely remain on an uptrend due to seasonality, while exports will likely weaken due to the absence of festive-driven demand and oil palm’s weak price competitiveness over other competing oils.

“We maintain 2024-2025 CPO price assumptions of RM4,000 a tonne and RM3,800 a tonne, respectively, as well as our ‘neutral’ stance on the sector.

“For exposure, our top picks are IOI and Hap Seng Plantations Holdings Bhd,” it said.