PETALING JAYA: Crude palm oil (CPO) prices are expected to remain range-bound in the near term at RM1,900-RM2,300 per tonne as the market digests the record US soybean supplies, higher palm oil supplies and lower crude oil prices, according to CIMB Research.
CIMB Research said the revised price forecasts assumed fourth quarter CPO prices to average RM2,200 per tonne.
“We believe that it will be difficult for CPO prices to break above the RM2,300 per tonne level convincingly, given the current crude oil price level of US$86 per barrel.
“This is because our estimate shows that the CPO-biodiesel breakeven price is about RM2,080 per tonne,” it said.
Yesterday, the CPO futures contract for January closed RM46 higher at RM2,212 per tonne.
Therefore, CIMB Research said it cut its average CPO price forecasts by 5% to 11% for 2014 to 2016 to reflect larger-than-expected global edible oil supplies as well as weaker demand for biodiesel usage in Indonesia.
It said the CPO price declines in the third quarter were sharper than it had previously expected – no thanks to stronger soybean supplies and weaker Chinese demand.
Following a review of the latest fundamentals for edible oils and fats, the research unit has lowered its average international CPO price forecast to US$840-US$910 per tonne (RM2,390-RM2,650).
CIMB Research has also cut its earnings per share forecast for regional planters by up to 41% to reflect its CPO price downgrade. It has also lowered the target prices by up to 23% across the board.
CIMB Research said CPO prices started to decline in the second quarter when the drought concerns in Malaysia eased after the key palm oil areas started to receive timely rainfall.
In addition, it said CPO production in Malaysia came in above expectations due to the delayed ripening of fruits from first quarter onwards.
“The unexpected downturn came in the third quarter, where a confluence of bearish factors caused CPO prices to break below the RM2,000-per-tonne mark for the first time in more than five years. The price decline was steeper than expected,” it said.
CIMB Research said key reasons for the steep price correction included bumper US soybean supplies, large rapeseed and sunflower oil supplies as well as concerns over rising palm oil stocks.
The firm said it was nevertheless maintaining its “neutral” rating on the plantation sector with First Resources Ltd as its key pick.
“For 2015, we expect CPO prices to trend higher due to slower edible oils output growth and restocking activities by customers. We are more bullish on the price prospects for 2016, as we expect stronger biodiesel demand and potential biological tree stress,” it said.
CIMB Research said it expected planters to face tougher challenges of reining in a steeper rise in operating costs in 2015 compared with 2014.
It added that the cost increases would be driven by higher minimum wages and lower fuel subsidies.
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