PETALING JAYA: Crude palm oil (CPO) stockpiles will likely fall below two million tonnes by the end of this month, potentially pushing the commodity’s prices higher in the near term.
Maybank Investment Bank (Maybank IB) Research projected that CPO prices would briefly rise above RM4,200 per tonne within this month and March before settling at lower levels in the second half (2H) of this year.
In its report yesterday, the brokerage said the short-term uptrend in CPO price was intact as the stockpile’s seasonal decline gained momentum.
It noted that data from the Malaysian Palm Oil Board (MPOB) showed January stockpile hit a six-month low at 2.02 million tonnes, down 12% month-on-month and 11% year-on-year (y-o-y), on seasonal decline in output, while exports remained resilient ahead of Ramadhan demand.
“We reckon that if February exports can be sustained around 1.1 million to 1.2 million tonnes (considering the shorter calendar month), there will be further inventory drawdown to below two million tonnes by end-February.
“This will help further strengthen CPO price in the short term on tightness in supply,” Maybank IB Research said.
“We reiterate our view that CPO price may briefly go above RM4,200 per tonne in February/March,” it added.
Thereafter, it said, CPO price should trend lower by mid-2024 due to availability of new South American harvests, and anticipation of CPO output recovery in 2H24.Maybank IB Research maintained its “neutral” recommendation on the plantation sector.
For plantation shares on Bursa Malaysia, it recommended “buy” on Sime Darby Plantation Bhd
and Ta Ann Holdings Bhd.
Similarly, RHB Research maintained its “neutral” outlook on the plantation sector, with a tactically positive trading strategy.
“We continue to expect a higher CPO price environment in 1H24, in anticipation of a seasonally weaker output and the El Nino impact,” the brokerage said.
It added that it continued to prefer upstream players, with top picks being Ta Ann and Sarawak Oil Palms Bhd in Malaysia.
“Lower production in the months ahead together with an anticipated stronger demand in the export market could potentially lead to Malaysian palm oil stocks dropping below the two-million-tonne mark by next month, thus providing a boost to CPO prices,” RHB Research said.
Meanwhile, Hong Leong Investment Bank (HLIB) Research maintained its CPO price forecast at RM4,000 per tonne for 2024 and RM3,800 per tonne for 2025.
It said it expected El Nino’s impact on palm production and prices to kick in around mid-2024.
HLIB Research kept its “neutral” stance on the sector, given the absence of notable demand catalyst. For exposure, it recommended IOI Corp Bhd and Hap Seng Plantations Holdings Bhd.
Kenanga Research was also “neutral” on the plantation sector, noting its valuation at 1.2 times price-to-book should be supportive against further substantial downside. But it added that there was no strong upside lift either.
Kenanga Research maintained its forecast for average CPO price at RM3,800 per tonnes for 2024-2025.
“The main issue is demand for edible oil which is underpinned mainly by population and income growth is expected to continue growing at 3%-4% y-o-y, but supply is affected by tightening regulation, unpredictable weather and even geopolitical disruptions,” it said.
“Specifically for palm oil, Indonesia, the top producer and also user, looks set to manage exports till Hari Raya in April while India, a big palm oil importer, is likely to maintain generous levels of inventory pending an election in 1H24,” it added.
Further, it noted that the growth in palm oil supply had moderated on falling yields, largely on ageing trees as well as slower new planting.
Kenanga Research’s top pick for the sector was Kuala Lumpur Kepong Bhd, citing the company’s good track record and expansion potential in both upstream and downstream beyond Malaysia.
