Crude palm oil prices to average RM2,600 for 2017, says CIMB Research

KUALA LUMPUR: CIMB Equities Research is maintaining its average crude palm oil (CPO) prices projection of RM2,600 for 2017. 

In its research note on Thursday, it said CPO prices could exceed its projections if the recovery in palm oil supply was not as strong as expected, due to labour shortages and adverse weather affecting the supply of competing edible oils. 

“We project CPO price to trade in the RM2,400-RM2,700 range in September. We maintain our Neutral rating on the sector. Our regional top picks remain First Resources, Sime Darby and Astra Agro,” it said. 

CIMB Research said findings from a survey of 19 plantation areas by the CIMB Futures team revealed that Malaysian CPO output likely fell 1% month-on-month to 1.81 million tonnes in August 2017. 

Palm oil exports likely fell by c.0.4% month-on-month, based on export statistics released by Societe Generale de Surveillance (SGS) and Intertek Testing Services (ITS). 

“Overall, we estimate that Malaysian palm oil inventories increased by 13% month-on-month to 2.06 million tonnes at end-August. The official figures will be released on Sept 11, 2017 (Monday).  

“The projected 1% month-on-month decline in fresh fruit bunches (FFB) output is lower than the historical August average month-on-month rise of 8.8% over the past five years but above our earlier estimate of a 2% month-on-month decline in output due to stronger month-on-month output growth in Peninsular Malaysia. 

“The weaker production was due to absence of spillover effect of harvesting from Raya break experienced in July. Year-on-year, we estimate CPO output improved by 6% in August 2017,” it pointed out.
 
CIMB Research said its estimated production for August was 12% below the August 2015 output (pre-El Nino impact). 

It also estimated that Malaysian palm oil exports fell by c.0.4% month-on-month in August 2017, based on estimates from cargo surveyors SGS (-0.7% month-on-month) and Intertek (0.3% month-on-month).

This was lower than its earlier projection of a 2% month-on-month rise in exports. The lower month-on-month exports in August were due to weaker demand from China, the US and the EU, possibly because these countries may have stocked up earlier.

Average CPO prices in July remained resilient, falling by only 2% month-on-month to RM2,629/tonne despite expectations of higher palm oil supply in the coming months. 

This was due partly to the stronger soybean oil prices and concerns over a lower-than-expected rise in palm oil supplies from Malaysia due to a shortage of foreign labour. 

Felda Global Ventures recently highlighted that it was short of 8,000 workers (or c.20% of its workforce) in 2Q, which led to lower production from its estates.