KUALA LUMPUR: PublicInvest Research said it was not so optimistic over the crude palm oil (CPO) outlook this year despite emergence of the El Nino event.
In its report on Tuesday it said the factors were due to weaker-than-expected demand for CPO, softening crude oil prices and soybean oil production remaining consistently high.
“We cut our CPO price forecast for FY15 and FY16 to RM2,100 a tonne and RM2,300 from RM2,300 and RM2,500 respectively,” it said.
PublicInvest Research maintained its Neutral call with Genting Plantations and Ta Ann the favoured plantation counters.
CPO fell from RM2,181 in July to RM1,951 last month and even touched RM1,806, the lowest level since January 2009. The fall was in line with the pressure across commodity markets.
“Apart from that, the tumble in crude oil prices also made biodiesel demand less appealing. We expect CPO prices to continue being under pressure in the coming months amid the high production period. YTD, CPO price is averaging around RM2,183 vs RM2,534 in 2014,” it said.
The research house said crude oil was the main culprit for weaker commodity prices. A majority of commodities have seen poor performances since the collapse of crude oil prices in 2H last year.
The anticipation of a US interest rate hike coupled with the slowdown in regional economies has led to disappointing performances as demand for commodities softened significantly.
CPO prices, dragged by softer prices in both crude oil and soybean oil, has dipped more than 15% this year to the current level of RM1,927.
“We are seeing a gradual recovery in CPO demand since three months ago however, as cheaper CPO prices has attracted buying interest.
“The weakening ringgit, which has fallen more than 20% YTD, wider spread between soybean oil and CPO prices (US$140) and less competition from Indonesian CPO exports could make Malaysian CPO exports more appealing in the coming months,” it said.
PublicInvest Research said Australia’s Bureau of Meteorology studies show that the current El Nino pattern is the strongest since 1997-98. Malaysian Meteorological Department sees an 85% chance that it will last into early spring 2016. All indicators show El Nino’s signal strengthening.
“However, thus far, our channel checks reveal that the El Nino threat is largely muted. Sabah’s condition has improved recently while Kalimantan and Sumatra are experiencing dry conditions,” it said.
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