PETALING JAYA: International palm oil expert and trader Dorab Mistry expects the price of crude palm oil (CPO) to rebound quickly with an upside of RM200-RM250 per tonne after its recent sharp drop over the past few days.
Mistry, who is a director of Godrej International Ltd, pointed out that the commodity could even rise further by RM300-RM400 per tonne, mainly supported by higher soybean oil prices and the recovery in demand from India given the improvement in the Covid-19 situation there.
Sharing his outlook on global vegetable oils at a recent webinar hosted by UOB Kay Hian (UOBKH), Mistry remained bullish on the prices of vegetable oils, moving forward.
However, he cautioned that there might be some downside in August and September once the production of CPO starts to pick up, especially from Indonesia.
The downside could be mitigated “if Malaysia’s production fails to recover due to the severe labour shortage, ” added Mistry.
CPO prices have fallen sharply by about 15% in the past few days on market talk of the United States fossil fuel relief for its refiners.
“This is unlikely to happen, ” opined Mistry, adding that US president Joe Biden was a strong supporter of green energy, which means soybean oil prices will likely remain elevated.
He said that the recent CPO price weakness was mainly driven by an anticipated increase in palm oil production, potentially weak palm oil exports this month and market talk on the US biodiesel mandate changes.
Therefore, the key price factors to watch out in the second half of this year include the US biodiesel waivers, the US weather in July to August, which may impact soybean production and the revision of Indonesia’s levy and duty.
Meanwhile, UOBKH Research in its latest report is maintaining a “market weight” rating on the plantation sector.
“We remain concerned about the impact of the limited supply situation on companies’ earnings and the demand uncertainties, especially from India, ” it added.
For investors seeking exposure to the sector, UOBKH’s picks are Hap Seng Plantations Bhd, Sarawak Oil Palms Bhd, Kim Loong Resources Bhd, Kuala Lumpur Kepong Bhd, First Resources Ltd, Astra Agro Lestari Tbk PT and Tunas Baru Lampung Tbk PT.
The research house has also maintained its CPO price assumption of RM3, 000 per tonne in 2021 and RM2, 600 per tonne in 2022.
Currently, there is a wide CPO price discount of US$600 (RM2, 470) per tonne to soybean oil.
“This discount gap may remain for now, as soybean oil supply remains tight on more demand volume coming from the biofuel sector, ” added the research house.
CPO production is also set to increase as the industry enters the high production cycle, potentially better yield due to the good rainfall in the past 12 months and fertiliser applications which had caught up.