KUALA LUMPUR: Research houses are maintaining their overweight calls on the plantation sector on better outlook of the crude palm oil (CPO) price.
Kenanga Research said the higher price would be supported by the expectation of lower CPO production for January 2020 due to the continued impact from dry weather, lower fertiliser application and replanting activities.
It said in a note today that CPO production in January 2020 was projected to decline by 5.5% month-on-month (mom) to 1.26 million tonnes while exports were anticipated to hold steady as subdued demand from China and India would be negated by stronger demand from the European Union (EU).
“Based on cargo surveyors data, exports for Jan 1-10 to the EU saw a 60% increase mom.
“All in, we still expect total demand to outstrip supply leading to lower ending stocks of 1.76 million tonnes in January, the first time it will hit below the two-million-tonne level since August 2017,” it said, adding that the full-year CPO price was forecast at RM2,700 per tonne.
Besides stronger exports, the CPO prices will also be supported by the potential widening of soybean oil-crude palm oil premium after more clarity is provided on China’s agricultural buying from the United States in the upcoming phase-one trade deal.
Meanwhile, Affin Hwang Capital Research said Malaysia’s palm oil inventory continued to decline to two million tonnes in December 2019, the lowest level since September 2018, given the higher consumption of palm oil products as compared to its production.
“We expect inventory levels to continue to trend lower in 2020 as we believe demand will surpass production,” it said.
The research house is optimistic that the global palm oil inventory would continue to decline gradually year-on-year from 2020 onward, with higher exports and consumption likely to be supported by the energy market and food industries.
It said Malaysia had targeted to raise its biodiesel mandate to B20 (from B10 currently) by end-2020, while Indonesia was targeting B30 (from B20) by January this year.
“The anticipation of higher demand growth rate for palm oil products compared with the production growth rate has positively catalysed CPO prices, which have been on a rising trend since mid-October 2019, and stood at RM3,000 per tonne as of December 2019,” it said.
Affin Hwang has maintained its CPO average selling price assumptions at RM2,500 to RM2,600 per tonne for 2020-2021. – Jan 13, 2020, Bernama
