PALM oil prices are poised to recover as the recent 30% correction is not justifiable with supply still tight and with demand returning as well an improvement from the biofuel segment.
In fact Oil World managing director Thomas Mielke shared over a webinar yesterday (June 27) that the slump in crude palm oil (CPO) prices over the past three weeks has been an over-reaction.
He expects some price rebound in the near term mainly attributed to (i) relatively tight supply (due to the limited exports from Indonesia); (ii) pent-up demand from the consumption countries with its current low inventory and attractive pricing; and (iii) additional biofuel demand with the widening palm oil–gas oil (PO-GO) discount.
However, prices are expected to be lower in 2022/2023 on the back of a stronger supply but will still be at a supportive level as conventional demand is returning from both the food and fuel sectors.
“Lower agri-commodity prices in 2022/2023 will lead to higher vegoil demand … With the expectations of lower global agri-commodity prices, Mielke expects the demand for 17 oils & fats to increase by at least 6 million tonnes globally,” UOB Kay Hian Research analysts Leow Huey Chuen and Jacquelyn Yow pointed out in a plantation sector update.
“He highlighted that there is a potential increase in edible oil consumption by 4-5 million tonnes worldwide (especially from China, India, Pakistan and India which contributed about 3 million tonnes) mainly attributed to the more affordable pricing.”
With the widening PO-GO price discount, Mielke further expects additional demand for the biofuel segment. The discretionary demand for biofuel would easily increase by 1.5 mililon-2 million tonnes due to price competitiveness against crude oil prices.
All-in-all, UOB Kay Hian reiterated its “market weight” outlook on the plantation sector.
“Despite our expectation of a CPO downtrend in 2H 2022, we reckon that CPO prices would still remain high, supported by the slow exports from Indonesia (logistic issue) and the tight vegoil situation in 2022,” projected the research house.
“We expect a lower average CPO price of RM4,000/metric tonne (MT) for 2023 vs RM5,200/MT for 2022. Maintain ‘buy’ on Hap Seng Plantations Holdings Bhd (‘buy’; target price: RM2.80) and IOI Corp Bhd (‘buy’; TP: RM5.15). – June 28, 2022
