MALAYSIA’S crude palm oil (CPO) price will likely sustain at above the RM4,000/metric tonne (MT) mark over the next few months – possibly until 1Q 2023 – supported by near-term supply concerns and palm’s price competitiveness.
Hong Leong Investment Bank (HLIB) Research expects the CPO price to hold steady following uncertainties on the fate of the Black Sea Grain Corridor which is set to expire on Nov 19 as well as lower near term palm supply arising from seasonally low palm oil production cycle and the onset of the La Nina weather phenomenon.
“(Moreover, there is) favourable POGO (palm oil and gas oil) spread and CPO’s wide discount against soybean oil which encourage palm oil consumption and easing concerns on Indonesia’s palm oil stockpiles,” projected analyst Chye Wen Fei in a plantation sector update.
However, HLIB Research expects CPO price to start trending down from 2Q 2023 on the back of the following developments:
- Better supply visibility for vegetable oils (arising from easing labour shortage in Malaysia and absence of weather anomalies);
- Heightened risk of global recession; and
- Inventories build up in key palm oil importing countries.
Moving forward, HLIB Research expects labour shortage to ease further in 2023. “We note that arrival of foreign workers has started gaining traction in the past few months, and should continue to improve (albeit gradually) into 2023, hence easing worker shortage in the plantation sector,” noted the research house.
Elsewhere, the research house also cautioned that heightened global recession risk as warned by the International Monetary Federation (IMF) and World Bank recently will likely drag demand for vegetable oils, including palm oil.
“Low palm oil prices in the past few months have prompted key palm oil importing countries (such as China and India) to step up on their palm oil replenishing activities, resulting in higher edible oil inventory levels which indicates limited potential for more aggressive replenishing activities for palm oil,” HLIB Research further projected.
It further lowered CPO price assumptions for 2022-2023 to RM5,050/MT and RM4,000/MT while reiterating its “overweight” stance on the sector, supported by commendable valuations.
HLIB Research’s two top picks are Kuala Lumpur Kepong Bhd (“buy”; target price: RM27.27) and IOI Group Bhd (“buy”; TP: RM4.65). – Nov 10, 2022
