ALL of a sudden, the environmental, social and governance (ESG) criterion which was instrumental in dragging down the share price of Malaysian plantation stocks seems “to have faded into oblivion”.
Instead, the Bursa Malaysia Plantation Index which had not truly reflected a surge in CPO prices suddenly roared back to life by spiking from 6.552.11on Dec 31, 2021 to 8,458.23 at the time of writing, an almost 30% jump in a span of three months.
Currently, CPO prices have breached the RM8,000/metric tonne (MT) level – and all-time high – due to supply tightness situation. Contrast this with CPO’s average selling price (ASP) of RM5,171.40/MT in 4Q CY2021 which represented a huge improvement from RM3,372.60/MT in 4Q CY2020 (+53% year-on-year [yoy]).
“In line with the aggressive increase of CPO price in early February, we saw that Bursa Malaysia Plantation Index has started to reflect the high price of CPO,” observed MIDF Research analyst Shahira Rahim in a plantation sector update.
“It is interesting to note that we saw significant inflows from foreign investors into our plantation stocks since early February 2022.”
Reiterating a “positive” stance on the sector with revised CY2022 CPO target price of RM4,300/MT from RM3,300/MT previously, MIDF Research attributed the current bullish sentiment to:
- Slow production growth;
- Shortages of skilled harvesters;
- La Nina weather;
- Better demand outlook on the back of better economic activities locally and globally;
- Subdued production outlook for soybean on the back of drought in South America;
- Indonesia’s new export rule (the country has imposed a rule for a mandatory portion of palm oil to be sold domestically whereby exporters must allocate 20% of their shipments for local supply); and
- Higher price of edible oil on the back of supply concerns amid the Russia-Ukraine crisis.
Meanwhile, CGS-CIMB Research expects the current high CPO prices to correct significantly if a resolution is reached in the Russia-Ukraine crisis and edible oil trades resume.
“Other potential risks to high CPO prices are potential cuts in biodiesel mandate. Planters that sell mostly spot like Hap Seng Plantations Holdings Bhd, Ta Ann Holdings Bhd and most Indonesian planters are likely to benefit from the spike in CPO prices,” opined head of research Ivy Ng Lee Fang in an ASEAN agribusiness outlook.
For now, however, CPO prices in the near term are likely to stay high and above the research house’s average CPO price forecast of RM4,100/MT for 2022F which has not accounted for the disruption in sunflower oil exports from Ukraine.
In the interim, panic buying by consumers to cover the temporary shortfall in edible oil supplies from Ukraine is likely to continue until the situation improves. Palm oil and soya oil are likely to benefit from this trend. – March 2, 2022
