PETALING JAYA: Analysts are mostly revising upwards their crude palm oil (CPO) price forecasts for the remainder of 2024 and first quarter of 2025 (1Q25) following growing concerns over declining production and supply tightness.
The situation is also reflected by the lower palm oil stockpile figure, of 1.89 million tonnes for October, released by the Malaysian Palm Oil Board (MPOB) on Monday.
Notably, CPO’s spot price surged to RM5,060.50 per tonne on Nov 8, up 36% from end-December 2023.
Year-to-date, CPO has been averaging RM4,072 per tonne, up 5.7% year-on-year.
“We have raised our average CPO price forecast to RM4,150 per tonne for 2024 and RM4,200 per tonne for 2025, up from RM3,900 per tonne,” CIMB Research said.
The research house said it would also adjust its earnings projections for the plantation sector during the next results season to reflect the higher prices and costs following Budget 2025.
“We project palm oil stock to fall by 2% to 1.85 million tonnes in November 2024, driven by lower output,” it added.
CIMB Research noted that CPO’s price had recently rallied to a two-year high owing to concerns over tightening palm oil supply, with Indonesia’s planned adoption of a biodiesel mandate in January 2025 expected to boost demand for palm oil by two million tonnes.
Last month, Indonesia’s agriculture minister reaffirmed the country’s plan to implement a 40% mandatory biodiesel mix with palm oil-based fuel, known as B40, starting in January.
The research house also continued to favour SD Guthrie Bhd, IOI Corp Bhd
, Ta Ann Holdings Bhd and Hap Seng Plantations Holdings Bhd as its picks for the plantation sector.
The key catalysts for the sector include stronger-than-expected 3Q24 results and potential value-unlocking through mergers and acquisitions and land bank monetisation, it said.
Meanwhile, UOB Kay Hian (UOBKH) Research said it anticipates CPO’s spot price to trade between RM4,500 and RM5,000 per tonne for the remaining months of this year.
“We reckon the price range can be sustained at least through 1Q25, as production typically begins to peak in 2Q25 and 3Q25.
“This increase in production is likely to ease supply pressures, which could lead to a gradual moderation in prices in the following quarters,” said the research house.
However, UOBKH Research pointed out potential surprises in production due to a possible La Nina event in 4Q24 that could lead to weaker-than-expected production, driving CPO prices higher.
“The potential onset of La Nina in late-2024 remains a wildcard weather risk, given the uncertainty to its occurrence as well as potential severity, although the risk appears remote thus far for palm-producing regions,” added the research house.
UOBKH Research, which maintained a “market overweight” rating on the sector, said its only “buy” call is Hap Seng Plantations as it continues to like the company for its upstream exposure, favourable production trend and high dividend yields.
On the sector’s earnings outlook for the second half of 2024 (2H24), the research house said it expects Malaysian planters to report stronger earnings during the period compared with 1H24, driven by seasonal production increases and higher average prices for CPO and palm kernel.
“In 3Q24, we anticipated earnings to rise quarter-on-quarter (q-o-q) due to increased production, with spot CPO prices averaging RM4,000 per tonne.
“For 4Q24, results are expected to be relatively stable q-o-q, as lower production will likely be balanced by higher average selling prices,” the research house said.
Hong Leong Investment Bank (HLIB) Research said in a note to clients that it expected the domestic palm oil stock level would likely stay below two million tonnes for the remainder of this year.
This is as seasonally weaker exports arising from the absence of festival-driven restocking activity and the winter season will be offset by seasonally lower cropping patterns.
It also maintained its CPO price assumptions of RM4,150 per tonne for 2024 and RM4,000 for 2025, pending a review of its earnings forecasts and target prices in the upcoming results season.
HLIB Research’s top “buy” picks are IOI with a target price of RM4.22 and Hap Seng Plantations at RM2.21.
MIDF Research, meanwhile, expects CPO prices to remain elevated.
“Overall, we will adjust our earnings estimates, target prices and recommendations for individual companies to reflect our updated CPO price and fresh fruit bunch output assumptions in the upcoming results season, starting this month,” it added.
