CRUDE palm oil (CPO) spot prices are likely to moderate over the coming months as the inventory levels of major export partners recover following the Covid-19 pandemic.
This also comes at a time when the industry enters a seasonal peak production period, which TA Securities analyst Angeline Chin noted that the production in June saw a month-on-month (m-o-m) surge of 14.2% to 1.89 million metric tonnes produced.
“Besides the seasonal factor, we believe the surge was mainly attributable to the low-base effect as harvest activities resumed after workers came back from Aidilfitri holidays,” said Chin, who added that July may see a slower production growth following this surge.
MIDF Research analyst Martin Foo noted that June had seen export figures jump 24.9% m-o-m to about 1.7 million metric tonnes, mainly driven by higher demand from China, India and Pakistan.
“This was the biggest monthly increase since September 2018. We opine that this was primarily attributable to the easing of lockdown and low vegetable oil stocks in the major palm oil consuming countries as well as export duty exemption-induced demand.
“Nonetheless, we postulate that the export demand will gradually taper off given the possible slower movement in restocking activities in the coming months,” said Foo, who also warned that there could be possible headwinds such as intermittent and extended lockdowns, should Covid-19 see new cases emerging, especially in India where new cases seem unabated.
Affin Hwang Capital analyst Nadia Aquidah noted that another possible disruptor comes from the possibility of La Nina towards the end of the year. The cycle of El Nino and La Nina can greatly influence global weather, which can cause major disruptions to the world’s agricultural production and supply.
TA Securities, MIDF Research and Affin Hwang Capital all maintain neutral calls for the plantation sector. – July 13, 2020
