PETALING JAYA: The fortunes of oil palm plantation companies in the second half of this year are uncertain given the volatile crude palm oil (CPO) prices amid escalating domestic palm oil stockpile, which is slated to re-visit the historic high of two million tonnes by year-end.
CPO futures is currently trading at a one-year low at RM2,190 per tonne level while the end-July palm oil stocks stood at 1.68 milion tonnes.
Based on historic records, the next few months is expected to see high production of CPO and analysts expect the stockpile to hit 1.8 million tonnes by the end of this month.
Analysts have pegged CPO price to trade between RM2,100 and RM2,400 per tonne for the rest this month.
“But nobody dares predict the price beyond the next three months because there could be some catalyst to increase demand such as the Government’s initiative to implement the nationwide bio-diesel mandate,” said an analyst.
The mandate is under the B-5 programme where 5% of palm oil methyl ester will be required to be added on diesel.
Among plantation companies, a mere RM100 increase in the CPO price per tonne could translate into additional “hefty” contributions to group profits.
Sime Darby Bhd had said that every RM100 per tonne change in the CPO price could result in an “addition or reduction of RM250mil” to its group profit.
While for Felda Global Ventures Holdings Bhd (FGV), every RM100 change in the CPO price would result in an addition or reduction of RM100mil.
However, despite the hazy earnings outlook for planters in the second half of this year, Kenanga Research believes the upcoming quarter-two result season in end-August should not see any significant negative surprises for the plantation sector.
It expects most plantation companies’ second quarter earnings results due end of this month to meet consensus estimates.
“This is because the first half CPO price at RM2,633 per tonne was close to consensus average CPO prices at RM2,650 per tonne,” the research unit said in its latest plantation report.
“Additionally, we expect at least 20% earnings growth year-on-year (yoy) for planters due to better CPO prices (+11% yoy) and higher CPO production (+15% yoy).
“As a result, we do not expect any significant downside in planters’ share prices in the near term,” said Kenanga Research.
Kenanga Research has reiterated a neutral call on the plantation sector with both 2014-2015 average CPO price forecasts unchanged at RM2,500 per tonne.
Yesterday, most plantation stocks on Bursa Malaysia closed lower on bearish outlook with Kuala Lumpur Kepong 10 sen lower at RM23.70, while Felda Global Ventures Holdings Bhd lost two sen to RM3.97, Sime Darby Bhd eased two sen to RM9.49 and IOI Corp was unchanged at RM5.
Meanwhile, Singapore-based Rabobank food and agribusiness research and advisory head Pawan Kumar said CPO prices may be pressured due to subdued demand as well as the easy availability of other vegetable oils.
He said at a briefing here that domestic palm oil stocks could decline after October as palm oil traders did not like to hold on to inventory.
“We’re looking at RM2,400 to RM2,500 per tonne average for this year; now is the best time to buy,” Pawan said, adding that Rabobank had a “fairly neutral” view on CPO prices this year.
This is in contrast to soybean, where prices are expected to fall to US$1,020 per tonne in the fourth quarter from US$1,200 per tonne in the current quarter.
Pawan pointed out that plantation firms should keep an eye out for an El Nino alert this year as “this weather phenomenon would have a negative impact on production by 2%-15% next year.”
In the case of a severe El Nino occurrence, then this would be positive for CPO prices next year, he said.
Pawan expects CPO prices to trade in the range of RM2,600 for the first quarter next year and RM2,700 in the second quarter. CPO prices fell to the lowest year-to-date on Aug 11 to RM2,177 per tonne, an 18.13% drop.
Meanwhile, CIMB Research has projected CPO price to trade in the lower range of RM2,100-RM2,400 per tonne for the remainder of this month.
“We project palm oil stocks in Malaysia to begin their seasonal climb, rising 9% month-on-month to 1.84 million tonnes, driven by higher production and weaker exports due to competition from other edible oils,” said the research unit in its plantation report.
Over the past month, the key bearish factor, in the form of higher global oilseed supplies, had dampened soybean and rapeseed prices, which in turn, had depressed CPO prices as they competed for market share, said CIMB Research.
The bullish factors supporting CPO price have weakened as weather experts recently downgraded the probability of El Nino and biodiesel progress in Indonesia.
Furthermore, the research unit said: “There may be downside risk to our 2014 average price forecast of RM2,700 per tonne as average CPO price achieved in the first seven month of 2014 was only RM2,577 per tonne.”
Hence, CIMB Research believes the CPO price would need to stay attractive against other edible oils in order to boost exports so that palm oil stock levels in Malaysia and Indonesia will remain manageable.