PETALING JAYA: A sharp price crash for crude palm oil (CPO) is unlikely to happen in the near term due to the current insufficient supply of global vegetable oils and firm international crude oil prices, say analysts.
This is despite the price of CPO having fallen from its peak of RM8,077 per tonne to RM6,527 per tonne recently.
TA Research in its latest report believes that 2022 will still be a “fantastic year” for the plantation sector as the CPO price is expected to remain high compared with 2021.
However, a possible pullback is much more likely in the second half of the year with more significant improvement in supply, added the research house.
TA Research has raised its average CPO price forecast by 38% to RM5,500 per tonne in 2022 and 5% to RM4,000 per tonne in 2023.
This is after factoring in the relatively tight global edible oil supplies due to the disruption from the Russia-Ukraine war, rise in crude oil prices, Indonesia’s export ruling restriction policy and the Malaysian Palm Oil Board’s latest palm oil production figures in March.
RHB Research also concurred that CPO prices will stay high based on the current projections, the supply and demand of vegetable oils and CPO, which looks relatively tight for the first half of 2022.
Barring any unforeseen circumstances, the research house said the stock-to-usage ratios for major vegetable oils and CPO are expected to improve by the second half of the year, which should see a moderation in CPO prices.
“We assume that there will be some planting, harvesting and exporting of oilseeds and fertiliser in Russia and Ukraine,” RHB Research said in its latest report.
Also expected are that the extreme climate conditions do not recur in 2022, the labour shortage in Malaysia will be resolved in the second half of 2022 and there will be no changes to Indonesia’s biodiesel mandate.
RHB Research’s CPO price assumption is unchanged at RM4,300 per tonne for 2022 and RM3,700 per tonne for 2023.
“While this is considerably lower than the current spot prices, we prefer to relook at our price assumptions at a later stage, once prices are less volatile,” it added.
The research house’s regional top buys include Kuala Lumpur Kepong Bhd (KLK), Wilmar International Ltd, Sarawak Oil Palms Bhd and Ta Ann Holdings Bhd.
CGS-CIMB Research, meanwhile, projects CPO prices to stay volatile due to uncertainties relating to the Russia-Ukraine war, Malaysia’s labour shortage issue and government policies on the biodiesel mandate
“We believe CPO prices will trade at RM6,000 to RM7,000 per tonne in April due to lower export supplies of sunflower oil crops from Russia and Ukraine and higher demand ahead of the Hari Raya celebration.
“However, this is partly offset by higher export supplies from Indonesia after its domestic market obligation was abolished and replaced with a higher export levy,” CGS-CIMB Research said in its latest report.
Another key event to watch out for is the speed of foreign worker recruitment by local planters following the memorandum of understanding between Malaysia and Indonesia on April 1 on the placement and protection of Indonesian domestic workers.
In addition, Malaysian planters are likely to record strong first quarter (1Q) 2022 earnings.
This is on the average price of CPO rising 55% year-on-year (y-o-y) and 19% quarter-on-quarter to RM6,039.50 per tonne.
The CPO output also grew 4% y-o-y in 1Q of 2022.
The research house has kept its average CPO forecast of RM4,100 per tonne for 2022. Its key picks include KLK, Genting Plantations Bhd and Hap Seng Plantations Holdings Bhd.
In its latest report, Hong Leong Investment Bank Research maintained its CPO price assumption at RM4,300 per tonne in 2022 and RM3,300 per tonne in 2023 and 2024.
“We believe palm oil prices will remain at elevated levels possibly until the first half of 2022 supported by weaker production outlook for corn and soybean in South America and geopolitical tensions, which will likely result in the supply disruption in sunflower and rapeseed oils, as well as protracted fertiliser supply.”
The research house noted that “over the longer term, we continue to believe that a pullback in the CPO price will materialise when the palm oil output recovers, which in turn hinges on the entrance of foreign workers on to Malaysian shores”.
Source: The Star