CPO prices hit by uncertainties

KUALA LUMPUR: As the Covid-19 pandemic continues to develop, there could be an increase in demand for vegetable oils in China as the situation there improves even as demand slows in other countries hit hard by the outbreak.

According to Affin Hwang Capital research, which has a neutral outlook on CPO, the impact on food demand would depend on how long the coronavirus outbreak lasts.

Meanwhile, the drop in the price of Brent crude oil has reduced the price competitiveness of oils and fats for biodiesel.

"Although CPO prices have also fallen, the price spread between palm-oil and gas oil (diesel) has widened to US$220/MT from an average of US135$/MT in Feb20, which indicates a higher subsidy is needed for biodiesel blending activities.

"This could reduce the attractiveness of biodiesel and production could slow down," said the research house.

In a previous report, the research house had cut its CPO price assumptions for 2020-21 by RM150 per metric tonne to RM2,350-2,450 per metric tonne and adopted a more cautious stance on market outlook.

"We now forecast plantation companies’ 2020E earnings to grow by c.41.3% (from 53.4% previously), mainly driven by higher yoy CPO prices," it said.

Affin Hwang's top pick is Tan Ann while its other buy call is Jaya Tiasa.

It has hold ratings on IJM Plantation, Hap Seng Plantation, KL Kepong, FGV, SD Plantation and Genting Plantation, and a sell call on on IOI Corp.
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