UOB Kay Hian Research remains positive on CPO prices


“The recovery in CPO prices would continue on the back of: a) lower production growth after a strong recovery in 2018; b) smaller areas coming into maturity; and c) lower fresh fruit bunches (FFB) yield due to the lack of fertiliser application from end-2018,” UOB Kay Hian Malaysia Research said.

KUALA LUMPUR: UOB Kay Hian Malaysia Research remains positive on the recovery in crude palm oil (CPO) prices on the back of lower production growth with older-age tree profiles, slower replanting in Malaysia and a lack of fertiliser application.

In its research note issued on Friday it said there was no major impact from a weak El-Nino on 2019 production, but there might be a mild impact in 2020.

“Biodiesel demand would continue to be the main catalyst as Indonesia and Malaysia are targeting to implement B30 and B20 biodiesel mandates respectively. Maintain Market Weight, ” it said.

To recap, the research house had invited two speakers were invited to to its palm oil seminar to share their news on the palm oil market outlook and the impact of reduced fertiliser application on productivity.

“The recovery in CPO prices would continue on the back of: a) lower production growth after a strong recovery in 2018; b) smaller areas coming into maturity; and c) lower fresh fruit bunches (FFB) yield due to the lack of fertiliser application from end-2018, ” it said.

It also pointed out that key factors which would affect prices were India's decision to add another 5% import duty on refined palm oil (RPO) products from Malaysia, raising it to 50% on Sept 4.

However, the speakers pointed out this move might not affect Malaysia’s exports of palm oil to India, mainly due to the strong palm oil demand in India where palm oil is cheaper than other soft oils.

New plantings in Malaysia and Indonesia have slowed down significantly since 2015.

This structural change might start to impact global palm oil supply from 2023 as there are limited mature areas coming on stream. There are also limited new planting areas due to more stringent sustainable policy and lower CPO prices.

The research house also said a sizeable proportion of ageing oil palm in Indonesia (24%) and Malaysia (29%) needs to be replanted. Some companies have started to replant aggressively. Replanting will affect production growth for at least five years.

For example, Malaysia replanted 80,000-100,000ha a year, and this would potentially withdraw about one million tonnes of CPO from the market.

It also said the current soybean stock was 107 tonnes, which was still good and with no shortage in the 2018/19 season.

However, the current drought and fire in Brazil (mainly Mato Grosso which contributed about 30% of total soybean production in Brazil) may have some impact on soybean production in the 2019/20 season where the planting season begins in September-October.

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