Maybank sees CPO price rising to RM2,700

Asian share markets faced a testing time on Monday after Wall Street suffered its worst starting week in history and doubts over Beijing's policy choices sent investors into the arms of the safe-haven yen and sovereign bonds.

PETALING JAYA: Crude palm oil (CPO) could trend higher in early 2016 and peak sometime in March to May 2016 with the possibility of hitting RM2,700 per tonne, according to Maybank Investment Bank research.

The research house, however, was cautious about the commodity’s price towards August 2016, anticipating sharp CPO price correction in view of seasonally peak CPO output period.

“Our fundamental view for the sector remains ‘neutral’.

“But, there is opportunity for an El Nino trade in the first half of 2016,” Maybank said.

Among the large caps, IOI Corp (hold) is a good trade in first half of 2016 given its liquidity and proxy play to CPO price.

“Our fundamental ‘buys’ in the region are PT Astra Agro Lestari Tbk (AALI), TAH, SOP and BPlant.

“Sell Felda Global Ventures Holdings Bhd (FGV) for its steep valuation and high cost base.

“Key risk to our view is sustained low crude oil price could derail Indonesia and Malaysia’s targeted biodiesel usage,” Maybank said.

Maybank noted that Malaysian Palm Oil Board’s (MPOB) December 2015 stockpile provided some relief with seasonally low CPO output and resilient exports.

“We anticipate further decline in stockpile in the coming months on seasonally low production.

“While maintaining our 12 month neutral view, we advocate a trading strategy in first half 2016, as El Nino provides for a situational play,” it added.

CPO production is on a seasonal decline and will post its lowest output in February 2016.

Despite the production decline, the preliminary export estimates for the first 10 days of January 2016 by Intertek suggest a healthy 15% month-on-month increase to 0.32 million tonne.

Although still early days, sustained positive export growth in Jan will surely help drawdown inventories further, boosting spot prices.

Furthermore, Maybank said the Northeast monsoon had brought back the much needed rainfall in latter 2015, but the El Nino damage had been done with the market expecting fresh fruit bunches yield to be sharply lower year-on-year in 2016, especially for areas badly affected by the August-October 2015 dry spell.

“This situational play should benefit CPO price in general as it typically more than compensates for the decline in production.

“A further drawdown in inventories will help narrow the price gap between the spot and 3M futures CPO price,” it added.