PETALING JAYA: Better palm oil harvests and rising global biofuel demand are expected to keep crude palm oil (CPO) prices stable in the medium term, which bodes well for United Malacca Bhd
(UMB), say analysts.
Kenanga Research said CPO price has been trading sideways after a correction in mid-2022 and a fragile recovery will likely take place beyond this year and into 2024.
The weaker soybean harvest in Argentina and high production costs are expected to continue to drive CPO price volatility.
“Supply should still inch up year-on-year (y-o-y) thanks to the record Brazilian production but very poor Argentinean harvest is pointing to a much smaller increment. Consequently, edible oil inventory has less room to absorb any negative surprises.
“High production cost is another issue faced by palm oil planters but better harvest should provide some stability and coupled with firm CPO prices, margins should be more stable for the medium term,” the research house said in a report yesterday.
Indonesia has raised its biofuel blend from B30 to B35 recently, with Brazil doing the same, from B10 to B12 as of April.
Additionally, US biofuel demand is projected to be on an uptrend.
Kenanga Research said that for the nine months ended Jan 31, 2023 (9M23), UMB’s core net profit (CNP) of RM61.4mil came in below its expectations, largely due to higher production costs.
The figure was at 71% and 67% of the research house’s full-year forecast and full-year consensus estimate, respectively.
“The variance against our forecast came largely from higher operating cost, particularly labour and fertiliser which are expected to stay elevated,” it said.
