CPO bounces back despite Malaysia-India spat

KUALA LUMPUR: Despite the Malaysia-India spat, crude palm oil (CPO) prices have bounced back after recording its biggest weekly drop since November 2008 last week.

The rise in crude oil prices on tension in the Middle East and North Africa as well as a weaker ringgit had contributed to the rebound.

As at 5.30pm yesterday, the third-month benchmark CPO futures for April was traded RM64 higher at RM2,901 per tonne.

From its high of RM3,139 per tonne this month, the commodity fell 9.9% to RM2,828 last Friday following India’s move to restrict imports of refined palm oil and palm olein in January.

In general, industry experts said the recent CPO price rally of above the RM3,000-mark has been too sharp and a period of correction is likely.

Currently, the downward slope in CPO price towards the RM2,800 to RM2,900 level shows that the commodity price is correcting in the near term, according to Kenanga Research.

The research house expected CPO price to average around RM2,700 per tonne as there is significant buffer from current levels.

It believed that weak production from dry weather, lower fertiliser application and a decline in replanting activities would also cushion CPO prices.

RHB Research believed that a key factor that would keep CPO prices rising this year is the higher demand growth exceeding supply with stock usage ratios falling below historical averages.

Furthermore, it said strong food demand from China and India as well as bio-diesel which is the largest demand catalyst for Malaysia and Indonesia would also boost the commodity this year. In the first half of this year, the research house expected CPO price to remain high at between RM2,700 and RM3,100 per tonne before falling to a range of RM2,400 and RM2,700 per tonne in the second half of the year.

For the full-year forecast, RHB Research has revised CPO price up to RM2,600 per tonne while maintaining its 2021 forecast of RM2,500 per tonne.

“This will imply a substantial 22% year-on-year increase in CPO prices from 2019’s average of RM2,129 per tonne, ” it said.

As such, the research house noted that plantation companies’ earnings are likely to increase significantly given that CPO price change to earnings is more significant compared with fresh fruit bunch output growth.

“For the firms under our coverage, every RM100 per tonne change in CPO prices will impact earnings by between 4% and 18% per year.

“We expect to see the impact of strong CPO prices on earnings from the 4Q19 reporting period, that is in February, which could trigger another round of share price retracements, ” RHB Research said.

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