CGS-CIMB Research has forecast the average crude palm oil (CPO) price to reach RM2,600 to RM2,650 per tonne in 2020, should the commodity price stay at around RM3,000 per tonne for the rest of the year.
The research house said the forecast average price would be higher than its current projection of RM2,500 per tonne, which would be positive for plantation earnings as it expects the rise in CPO price to more than offset the decline in output.
“The spot CPO price hit a new year-to-date high of RM3,185 per tonne on Oct 27, 2020. This was due to concerns of lower-than-expected palm oil supply from Malaysia with the new standard operating procedure (SOP) restrictions in Sabah, potential adverse impact on soyabean supplies due to the La Nina phenomenon, as well as strong palm oil exports in the first 25 days of October,” it said in a note today.
“The recent rise in the CPO price is above our expectations,” it added.
CGS-CIMB has reiterated its neutral rating on the agribusiness sector, while its preferred picks in Malaysia are Genting Plantations Bhd, Ta Ann Holdings Bhd, and Hap Seng Plantations Holdings Bhd, and regional picks are Wilmar International Limited and First Resources Limited.
According to the recent virtual Palm and Lauric Oils Price Outlook Conference & Exhibition (POC) 2020, for the rest of 2020, the speakers concurred that CPO inventories are likely to stay tight and prices likely to remain elevated.
Most speakers at the event concurred that CPO prices were likely to stay around RM2,500 to RM3,000 per tonne for the rest of the year due to tight palm oil and other edible oil stocks, concerns over the impact of La Nina on edible oil supplies, and labour constraints in Malaysia, which could negatively impact fresh fruit bunch (FFB) yields from the estates in the coming months.
“For 2021 (forecast), most speakers agree that palm oil supply will improve in first half of 2021 due to the rainy season we are currently experiencing, which should be beneficial to FFB yields,” it said, adding POC 2020 generally concurred that the recent CPO price rally was driven by supply disruptions in key edible oils as well as palm oil producing regions.
CGS-CIMB said palm oil output from Malaysia and Indonesia was adversely affected by lower rainfalls, reduced fertiliser application, shortage of workers, and movement restrictions in some oil palm regions.
“The lower-than-expected supply of other edible oils (in particular sun and rapeseed oils) had also helped induce the sharp rise in vegetable oil prices from June 20 onwards, which had a spillover effect on CPO prices.
“Although the restricted movements imposed in most countries had caused a certain level of demand destruction on edible oils, the reduction in palm oil exports was short-lived, as key importing countries underwent restocking activities, while reduced availability of yellow greases and animal fats have led some biodiesel producers to switch their feedstock to vegetable oils,” it added. – Oct 30, 2020
