JUDGING from the wide disparity of crude palm oil (CPO) price to average RM4,000/metric tonne (MT) to RM9,000/MT in 2022 by esteemed speakers at the recently concluded 33rd Palm & Lauric Oils Price Outlook Conference & Exhibition (POC 2022), one can imagine how volatile trading of the commodity will pan out this year.
But the truth remains that both soybean oil (SBO) and CPO prices have risen by circa 50%-60% in the last few months. CPO is currently trading at a premium to SBO’s US$70/MT (from US$80/MT discount last month), hence making CPO uncompetitive.
“However, should the war continue for much longer, the sunflower seed planting season (April to September) in Russia and Ukraine will be disrupted, while other crops could be damaged – resulting in 6%-7% of global oilseed crop being lost,” rationalised RHB Research analyst Hoe Lee Leng in a regional plantation sector update.
“Besides this, Russia is one of the largest producers of potash fertiliser globally, and this could lead to higher prices and supply shortages.”
Given Malaysia’s CPO output fell 9.3% month-on-month (mom) in February while stocks dropped 2.1% to 1.52 million MT, the research house noted that “a trading strategy is best for the sector right now in light of the CPO price volatility and many uncertainties ahead”.
“We maintain our ‘neutral’ rating and continue to prefer purer Malaysian players (ie Kuala Lumpur Kepong Bhd [KLK], Sarawak Oil Palms Bhd and Ta Ann Holdings Bhd) as well as those with downstream capacities in Indonesia who will be able to benefit from the current regulatory structure,” added RHB Research.
Meanwhile, CGS-CIMB Research expects palm oil stocks to rise by 4.6% mom to 1.59 million MT by end-March 2022F with output and exports rising by 15% and 6% mom respectively.
“We predict CPO prices to trade at a wide range of RM6,000-RM7,500/MT in March 2022F due to uncertainties over the availability of sun oil crops from Russia and Ukraine, and Indonesia’s decision to increase its Domestic Market Obligation (DMO) percentage to 30%, up 10% points from the previous mandate effective March 10,” projected head of research Ivy Ng Lee Fang.
According to the research house, Indonesia’s move to further restrict exports of palm oil will tighten the availability of palm oil in the export market as exporters may need time to fulfill the new export ruling which “we gathered had caught the industry by surprise”.
“This could keep prices high at the current level of RM7,410/MT until the Ramadhan festival in May over the short term before trending lower in 2H 2022,” opined CGS-CIMB Research. “Maintain a ‘neutral’ rating with our key picks in Malaysia being KLK, Genting Plantations Bhd and Hap Seng Plantations Bhd.” – March 11, 2022
