CIMB Research sees CPO averaging RM2,700 in 2018

The company told Bursa Malaysia yesterday that revenue for the current quarter improved year-on-year (y-o-y), mainly due to higher fresh fruit bunch (FFB) production from Indonesia, apart from the higher sales of refined palm products.

KUALA LUMPUR: CIMB Equities Research expects the lower palm stockpile projected for March and concerns over lower soybean crops to be supportive for crude palm oil (CPO) prices. 

It said on Wednesday it projects CPO prices to trade in the range of RM2,400 to RM2,600 per tonne in April and to average at RM2,700 per tonne in 2018.

The upside risks are higher CPO prices and stronger demand for palm oil. The downside risks are weaker demand for palm oil and lower CPO prices. 

CIMB Research’s top regional picks are Genting Plantation, Wilmar and First Resources

Findings from a survey of 25 plantation areas by the CIMB Futures team reveal that Malaysian CPO output likely grew by 6% month-on-month to 1.42 million tonnes in March 2018. 

Palm oil exports likely rose by c.21% month-on-month, based on export statistics released by Societe Generale de Surveillance (SGS) and Amspec Malaysia. 

“Overall, we estimate that Malaysian palm oil inventories may have declined by 12% month-on-month to 2.18m tonnes as at end-March 2018,” it said. 

The official figures will be released on April 10.

“The projected 6% month-on-month rise in CPO output compares with the historical March average month-on-month increase of 15% over the past 10 years and our earlier estimate of a 12% month-on-month rise in output. 

“We attribute the lower-than-expected month-on-month rise in output partly to replanting efforts by East Malaysia estates.

“Our estimate reveals that CPO output fell by 3% on-year in March, representing the first decline since June 2017 when monthly production was weaker on-year, as most of the recovery in El Nino had been captured in the previous year’s output.  

“The month-on-month rise in exports in March was due mainly to stronger demand from China (+84% month-on-month), India (+78% month-on-month) and Pakistan (+114%) as traders rushed to export CPO from Malaysia ahead of the reinstatement of a 5% export tax on CPO effective April 1, 2018. 

“Average CPO prices fell 2.5% month-on-month to RM2,426 per tonne in March 2018. This could be partly due to India’s move to raise import duties on CPO by 14% pts to 44% in March and bearish CPO price predictions at POC 2018, which was held from March 5 to 7. 

“However, these are partly offset by a prolonged drought which is affecting Argentina’s soybean crops and better-than-expected palm oil export volumes in March 2018. 

On March 29, the US Department of Agriculture (USDA) in its annual prospective plantings surprised the market with a lower-than-expected forecast for 2018 soybean planted area. 

The USDA said the US farmers indicated that they intend to plant 88.9 million acres of soybean in 2018, down 1% from last year’s record of 90.1m acres, but still the second-highest ever, if realised. 

Trade expectations for soybean plantings ranged from 89.9 million to 92.6 million acres and averaged 91 million acres. This is slightly bullish for soybean prices.