CPO price seen to sustain

Supply worries surround industry

“The arrival of foreign workers has started gaining traction.” Hong Leong Investment Bank

PETALING JAYA: The crude palm oil (CPO) price will likely sustain at above RM4,000 per tonne over the next few months, supported by near-term supply concerns and price competitiveness.

Hong Leong Investment Bank’s (HLIB) research unit said this in a report, adding that it believed the CPO price will start trending down from the second quarter of 2023 (2Q23), on the back of better supply visibility for vegetable oils, arising from the easing of the labour shortage in Malaysia and the absence of weather anomalies as well as the heightened risk of a global recession.

Additionally, inventory build-up in key palm oil importing countries will also play a part. “CPO price assumptions for 2022-2023 are lowered to RM5,050 per tonne and RM4,000 per tonne, respectively.

“Earnings forecasts of individual planters will be reviewed in the upcoming results season,” it said, adding that it was maintaining its “overweight” stance on the sector, supported by “commendable” valuations.

In the report, HLIB pointed out that the arrival of foreign workers has started gaining traction in the past few months and should continue to improve into 2023.

The research house said this should ease the worker shortage in the plantation sector.

“La Nina is often associated with higher palm oil yields six to eight months later.

“The Australia Bureau of Meteorology indicated that La Nina will likely end by February 2023. According to Gro Intelligence, above-normal precipitation, which typically accompanies La Nina climate events, is often associated with higher palm oil yields six to eight months later, which in turn suggests higher palm oil production from 2Q23 onwards,” HLIB said.

La Nina can be characterised by lower-than-normal air pressure over the western Pacific. These low-pressure zones contribute to increased rainfall.

On the heightened risk of a global recession, HLIB noted that the International Monetary Fund and World Bank recently warned that the risk of a global recession has heightened and this will likely drag demand for vegetable oils, including palm oil.

It also noted that low palm oil prices in the past few months had prompted key palm oil importing countries such as China and India to step up their palm oil replenishing activities, resulting in higher edible oil inventory levels, which indicates limited potential for more aggressive replenishing activities.

“We maintain our ‘overweight’ stance on the sector, supported by commendable valuations and high near-term CPO prices. For exposure, our top picks are Kuala Lumpur Kepong Bhd and IOI Corp Bhd.” Meanwhile, Bernama reported that Malaysia’s CPO stocks rose 2.63% to 1.31 million tonnes in October from 1.28 million tonnes in September.