MIDF Research maintains CPO price forecast at RM2,450 for 2016

Malaysia

KUALA LUMPUR: MIDF Research has maintained its average crude palm oil (CPO) price assumption of RM2,450 per tonne for the year 2016 which is 14% higher than 2015 average of RM2,153.50 per tonne.

“We believe that China demand is likely to continue in August as the inventory has fall down to below average level in major ports.

“Our top pick is Kuala Lumpur Kepong Bhd (KLK) due to its earnings is expected to benefit from high CPO price due to its high exposure to palm oil business, good earnings growth of 41% year-on-year (y-o-y) to RM536mil in first half of FY16  and it is one of the rare big cap index-linked planters which is Shariah compliant and also an RSPO member,” MIDF said in a report.

The research house said Malaysia palm oil inventory level of 1.77 million tonne as of end-July 2016 was 3% below consensus estimate of 1.83 million tonne.

“It is also 3% below our estimate of 1.96 million tonne. Inventory has eased 0.2% month-on-month (the first decline in three months) and declined 22% y-o-y. Separately,exports for the first 10 days have improved 18% based on cargo surveyors’ data,” it added.

MIDF said while it had anticipated the demand from China to rise, but a 109% month-on-month surge was a positive surprise as it did not anticipate such a rapid recovery.

It gathered that July 2016 export to China was also the highest in 12 months. Demand has also improved for India (+12% mom to 189,358 MT), United States (+156% mom to 76,786 MT) and European Union (+26% mom to 189,735 MT).

MIDF noted that El Nino impact was still lingering as production increase by only 3% month-on-month to 1.59 million.

“Note that this is below the seasonal pattern of 8% growth seen historically. Sarawak production growth is the highest at 11% to 344,585 tonne followed by Sabah (+3% to 475,506 MT) and Peninsular Malaysia (+1% to 765,791 MT). On a yearly basis, production declined 13% and this suggests that the impact of El Nino is still there,” it said, adding that it expect August 2016 inventory to ease 1% to 1.76 million tonne.