Malaysian palm oil futures fell on Monday to their lowest in over three weeks despite supportive government data, weighed down by plunging crude oil prices and volatile global equities
KUALA LUMPUR: Morgan Stanley has reaffirmed its industry view upgrade for the plantation sector and advised investors to have an “overweight” view despite a poor third quarter earnings ahead.
That’s because the research house expected the current excessive stocks to drop below key thresholds by the second quarter next year based on its supply-side deficit forecasts.
“We recently hosted a call with Golden Agri's senior agronomist, who commented that yields had fallen 5% in recent weeks due to the haze and would likely fall by as much as 20% to 30% in the first half of next year as drought conditions impair oil palm flowering,” it said on Monday.
As a result, it remained confident in its below-consensus forecast for supply growth next year of 0%, which it expected to result in a supply-side deficit of 3.3 million tonnes.
While some investors are sceptical and pointed out record soybean stocks, Morgan Stanley opined that the edible oil markets would be tight next year.
Other major edible oils-- rapeseed and canola-- also look to be in supply-side deficit. These together with palm oil account for more than three times the supply of soybean oil, the research house noted.
“As such, we believe the market will require the extra soybean oil to partially off set a supply-side deficit in total edible oils approaching 4 million tonnes in 2015 and 2016.”
It added that poor third quarter earnings have been discounted by the market and investors were looking through to first half 2016 earnings instead.
“Our positive view for crude palm oil (CPO) pricing next year sees it more than offsetting near-term earnings concerns.”
On biodeisel, it noted that despite a slow start to Indonesia's 15% biodiesel blending mandate, it is now more confident that the target can be partially fulfilled in 2016.
It said the Indonesia Estate Crop Fund had begun distributing subsidies for biodiesel production while the government had announced fines for non-compliance.
Its forecast for CPO prices next year is RM2,750 per tonnes, which is above consensus.
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