CRUDE palm oil (CPO) prices are expected to trade in the RM5,500-RM6,500/metric tonne (MT) range in June due to the uncertain export supply of sunflower oil from Ukraine and lower-than-usual palm oil export supply from Indonesia.
The latter, according to CGS-CIMB Research, comes about as the Indonesian Government is still tweaking its export policies on palm oil to secure its domestic cooking oil supply.
“We project palm oil stock to rise by 5.1% month-on-month (mom) to 1.6 million MT by end-June 2022F on higher output (+5.3% mom) and lower exports (-5% mom),” projected head of research Ivy Ng Lee Fang and analyst Nagulan Ravi in a recent agribusiness update.
“We maintain our average CPO price forecasts for 2022F/2023F at RM5,600/RM3,800 per MT.”
CGS-CIMB Research expects CPO prices to weaken in 2H 2022F amid higher operating costs due to the hike in Malaysia’s monthly minimum wage to RM1,500 effective May 1, higher fertiliser costs as well as the windfall tax (cukai makmur).
“(This) will lead to lower profit margins in 2H 2022F unless productivity improves. We keep our ‘neutral’ rating as sector P/E (price-to-earnings) valuations of 12.8 times for FY2022F coupled with dividend yields of 4.3% is supportive of planters share price,” opined the research house.
Malaysia’s palm oil stock fell 7% mom and 3% yoy to 1.52 million MT in May on higher exports with the palm oil inventory remained tight as of end-May at 19% below its historical 10-year average May stock level of 1.88 million MT.
Overall, the research house expects this piece of news to be neutral for CPO price as the statistics were broadly in line with expectations.
CPO output fell 0.1% mom and 7% yoy to 1.46 million tonnes in May as productivity was impacted by the foreign workers’ shortage and fewer harvesting days due mainly to the Hari Raya celebrations from May 2-3.
Nevertheless, the planters are likely to receive new foreign workers starting end-June to alleviate their labour shortage which could partially ease the manpower crunch issue.
While May’s palm oil exports increased 27% mom and 7% yoy to 1.34 million MT, the higher exports are driven mainly by Indonesia’s decision to ban palm oil exports from April 28 to May 23. This shifted palm oil demand from Indonesia to Malaysia.
However, CGS-CIMB Research cautioned that the palm oil trade flows could shift back to Indonesia in June as Jakarta has issued 383 export permits to ship 460,647 MT of palm oil this month while introducing a palm oil export accelerating programme of up to 1 million MT of palm oil. – June 13, 2022
