High inventories put pressure on CPO price

KUALA LUMPUR: The current crude palm oil price level will be a challenge for plantation companies with young age profile due to their relatively higher costs, says PublicInvest Research.

The research house noted that CPO inventories was at an eight-month high of 2.54 million metric tonnes in September due to a double-digit increase in both production and export demand. 

"The high inventory level due to lacklustre demand has put pressure on CPO price, causing it to fall to its lowest level in two years at RM2,080/mt. YTD, it averaged at RM2,334/mt and would probably average around RM2,300/mt for the full-year."

CPo production rose for a third straight month as oil palm trees approach peak season, which is believed to be sometime between the October and November period.  Meanwhile, CPO exports jumped 47.2% to 1.61 million metric tonnes due to the waiver of CPO export duty, although a normalised level is expected in the coming months.

PublicInvest said it expects to see inventories remain at current high levels for the next five months.

"The excessive inventories should remain a dragging factor on CPO prices. At current CPO price of RM2,080/mt, it will be a challenge for young planters given their relatively higher operating costs and lower yields."