EVEN as prices of crude palm oil futures (FCPO) remain elevated, Maybank IB Research has downgraded the sector to “neutral” (from “positive” previously) given limited upside to target prices of counters under its radar following their recent share price outperformance.
However, the research house maintained that a protracted Russian-Ukraine war into the spring planting season and/or any agri-related sanctions on Russia or by Russia may just keep CPO average selling price (ASP) lofty for a bit longer.
“Otherwise, we believe CPO ASP may likely peak in 1Q 2022 as CPO supply is expected to recover from 2Q 2022 with Indonesia gradually lifting its export restriction post-Lebaran (Hari Raya),” opined analyst Ong Chee Ting in a regional plantation sector update.
“We downgrade Genting Plantations Bhd, Sarawak Oil Palms Bhd, TSH Resources Bhd and Boustead Plantations Bhd to “hold” (from “buy” previously) but upgrade Ta Ann Holdings Bhd to “buy” (from “hold” previously) alongside Kuala Lumpur Kepong Bhd.”
Although a confluence of factors formed the perfect storm to lift 1M FCPO to as high as RM8,163/metric tonne (MT) on March 1 (year-to-date: RM5,941/MT), most of the contributing factors will soon pass.
“La Nina is forecasted to end over the next three months. Most international climate models surveyed by the Australia Bureau of Meteorology expect a return to neutral ENSO (El Niño–Southern Oscillation) condition soon,” noted Maybank IB Research.
“The world has had two consecutive years of La Nina which impacted oilseed crop prospects that led to tightening supplies.”
While parts of the world suffered pockets of dryness, La Nina brought ample rainfall to Malaysia and Indonesia. This provided conducive environment for palm oil crop recovery in 2022.
Still, sufficient fertiliser will need to be administered in 1H 2022 to support optimal output recovery in 2H 2022.
“In terms of cropping pattern, we believe palm oil output is poised to pick up seasonally from 2Q 2022 and hit a seasonal peak in 2H 2022,” projected the research house. “A timely return of foreign labourers to Malaysia – targeted by end-2Q 2022 – will coincide with the onset of peak harvesting season in 2H 2022.”
Elsewhere, Maybank IB Research said the Russian-Ukraine war would remain the wild card with a protracted conflict being its key concern.
“Russia and Ukraine account for 75% of global exports of sunflower oils in 2021 marketing year (ie 8.5 million metric tonnes or 8.9% of global 17 oils & fats exports),” observed Maybank IB Research. “A prolong war may also risk Ukraine farmers missing out on sunflower planting this late-spring.”
In addition, Russia is also a key potash and nitrogen fertiliser exporter globally, accounting for more than 12% of global trades. Hence, a quick end to the Russian-Ukraine war will help restore normalcy again. – March 8, 2022
