Positive factors to buoy CPO prices

Norway

KUALA LUMPUR: A higher Indonesia biodiesel mandate, slower palm oil supply growth for Indonesia and higher palm oil demand from China will be the key factors to pare down the high palm oil stocks currently and help raise crude palm oil (CPO) prices, according to the key takeways from the recent Annual Palm and Lauric Oils Conference.

CIMB Equities Research said on Monday that overall, the speakers expect global palm oil demand to outstrip supply in 2019 but they had different price views due to differing expectations on how well the additional palm oil supply will be absorbed by the market at different price points.

“The other price factors to consider in 2019 are the potential El Nino impact on supplies, how the current weak soybean meal demand in China will benefit palm oil demand, and the potential changes in government policies on import duties and export taxes that could impact demand for palm oil,” it said.

CIMB Research said the speakers’ views that CPO prices could rise by 19% from the current level, to RM2,304 per tonne in 2019, was positive but it believed this has largely been reflected in current plantation companies’ share prices. 

“As such, we retain our Neutral call on regional planters. Our preferred picks are plantation companies with
young estates like First Resources and Genting Plantations, as well as Wilmar, which is expected to benefit from its plans to unlock value via the listing of its operations in China,” it said.

CIMB Research said the mean price forecast provided during the conference of RM2,304 per tonne was lower than its average CPO price forecast of RM2,400 per tonne for 2019.

It concurred with the speakers’ views of slowing global palm oil supply and improving biodiesel demand. 

“We are currently more optimistic on CPO pricesthan the speakers as we are more bullish on demand prospects due to the attractive price of CPO relative to its substitutes. We maintain our view that for CPO prices to move up meaningfully, CPO stocks in Malaysia will have to be pared down to 2.5m tonnes and below,” it said.