CPO price outlook for 2018 seen subdued

PALM oil industry experts have painted a rather subdued price outlook for crude palm oil (CPO) this year.

After a strong performance at RM2,783 per tonne in 2017, local and international palm oil experts at a recently concluded palm oil conference in Kuala Lumpur pegged the commodity to trade lower between RM2,200 and RM2,700 per tonne range this year.

Experts attribute the flat CPO price estimates to the post El-Nino production recovery, higher stockpile and the strengthening ringgit which will likely continue to weigh on the commodity.

The consensus forecast for CPO is around RM2,500 per tonne with the most bullish estimate coming from Godrej International Ltd director Dorab Mistry, who expects CPO to touch as high as RM2,700 per tonne in 2018.

OilWorld executive director Thomas Mielke made a wide range forecasts of RM2,350-RM2,700 per tonne while LMC International Ltd chairman James Fry made a conservative estimate at RM2,200 per tonne. Local experts such as United Plantations Bhd vice chairman and chief executive director Datuk Carl Bek-Nielsen and Felda Global Ventures Holdings Bhd group president and CEO Datuk Zakaria Arshad both see CPO trading between RM2,400 and RM2,600 per tonne respectively.

Plantation Industries and Commodities minister Datuk Seri Mah Siew Keong sees CPO averaging RM2,600 per tonne with a marginal rise in CPO production estimated at 20.5 million tonnes for this year.

He also targets higher total palm oil exports at RM80bil this year, up from RM74.7bil last year.

According to Public Investment Bank Bhd (PIVB), the local plantation sector had enjoyed a strong CPO price performance in 2017.

“CPO prices are generally higher for the first 10 months, supported by the tight CPO supplies before dipping to as low as RM2,340 per tonne, pressured by a sharp recovery in ringgit, a strong recovery in inventory levels and negative sentiments about the CPO outlook,” says the research unit in its latest report.

Going forward, PIVB expects CPO price to trade in the range of RM2,450-RM2,550 per tonne for the first half of this year and may see more price weakness after the Ramadan period in June.

It points out that PIVB’s full-year CPO price assumption of RM2,500 per tonne is also in line with its “neutral” outlook on the sector.

“Nevertheless, we view the CPO production recovery as the major wildcard to our assumption for this year as production might be under pressure due to the weather abnormalities in the Kalimantan region as well as Indonesia’s Non-Public Service Obligation biodiesel consumption (potentially take up additional of 700,000-1 million tonnes biodiesel demand) could be the game changer if it takes off,” it adds.

PIVB plantation stock picks include Genting Plantations Bhd and Ta Ann Holdings Bhd , given their pure plantation upstream focus, decent fresh fruit bunches production and young age profile.

Maybank Kim Eng in its latest report points out that it is imperative for Brent crude oil price to stay in the range of US$60-US$70 per barrel in order for CPO price to trade within the range of RM2,200-RM2,700 per tonne in 2018, as the former provides a safety net for CPO.

“Most forecasters at the recent palm oil conference expect CPO price to trade sideways in the coming months (third-month benchmark CPO price: RM2,443 per tonne) with higher price expected in the immediate term and to weaken thereafter on improved supply in second half 2018,” it adds.

While there is no bullish factor in sight to drive CPO price to RM3,000 per tonne, Maybank Kim Eng also notes that there are also no bearish factors that could lead to a collapse in CPO price to below RM2,000 per tonne.

The recent recovery in Brent crude oil prices to above US$60 per barrel has ignited biodiesel interest given the narrowed palm oil-gas oil spread.

According to Fry, Indonesia’s CPO Fund can potentially support up to 600,000 tonnes of biodiesel blend a month compared to 200,000 tonnes a year ago, a three-fold increase.

According to Maybank Kim Eng, the speakers’ views at the recent palm oil conference on CPO price were broadly in line as “we expect CPO price to firm up until April before it comes off from May 2018 and hit a bottom at end-third quarter 2018 when output peaks.

“We maintain our 2018 CPO average selling price forecast of RM2,600 per tonne for now. Other key downside risks to its view are lower crude oil prices, further strengthening in ringgit versus the US dollar and stronger-than-expected production recovery,” it adds.

Palm Oil