CIMB Research retains crude palm oil price forecasts at RM2,400

Malaysian palm oil futures dropped from an eight-week high on Thursday, falling as much as 1.4 percent in the second half of trade, weighed down by weaker soyoil on the U.S. Chicago Board of Trade (CBOT) and profit taking.

KUALA LUMPUR: CIMB Equities Research maintained its crude palm oil price (CPO) price forecasts of RM2,400 for this year and RM2,500 per tonne in 2020.

It had on Friday maintained its neutral call on the sector due to the lack of catalysts.

Malaysia’s palm oil stocks grew 7% on-month (+18% on-year) to an all-time high of 3.22 million tonnes as at end-December 2018. 

“This level was 2.2% above our and consensus projection of 3.14 million tonnes (previous high was three million tonnes in end-November 2018). 

“The variance against our forecast came largely from lower-than-expected exports and higher-than-expected imports. The higher-than-expected stockpile could dampen near-term CPO prices,” it said.

To recap, CPO production fell 2% on-month and 1% on-year in December 2018 to 1.81 million tonnes due to seasonal factors. The decline in yields was lower than the historical average on-month decline of 10.5% in December over the past 10 months. 

CIMB Research pointed out this was because estates in the Sabah region bucked the trend to report higher output. 

CPO output declined 2% to 19.5 million tonnes in 2018, which is a tad higher than the research house’s production estimate of 19.46 million tonnes (-2.3% on-year).

Palm oil exports rose 1% on-month to 1.38 million tonnes in December as stronger demand from China and India offset weaker demand from the EU. 

The stronger demand from China could be due to traders stocking up ahead of Chinese New Year in early February. 

“We also noticed that palm oil imports from Indonesia remained fairly high at 109,000 tonnes though it was 20% lower on-month,” it pointed out. 

CIMB Research said in 2018, Malaysia palm oil imports rose 51%, or 285,000 tonnes to 842,000 tonnes.

“We project palm oil stocks to fall 2% on-month to 3.14 million tonnes at end-Jan 2019F as exports and consumption exceed production. We expect January 2019 palm oil output to fall 11% on-month due to seasonal factors and exports to grow 5% on-month to 1.45 million tonnes.

“The average CPO price of RM2,232 per tonne was marginally lower than our 2018 average CPO price forecast of RM2,260 per tonne and 20% below 2017’s average of RM2,783 per tonne. 

“We expect the CPO price to trade in the region of RM1,900 to RM2,200 per tonne,” it added.

Key events to watch in January are El Nino development, execution of biodiesel mandate in Indonesia and palm oil exports to India following the recent reduction in palm oil import duties.