PETALING JAYA: The changes in Indonesia’s palm oil policies together with normalisation in stockpiles, increasing output and demand will strongly determine the next price movement for the commodity this year, say analysts.
Most analysts maintained a “neutral” call on the plantation sector, and pegged crude palm oil (CPO) price average between RM3,500 and RM4,000 per tonne in 2023, much lower from RM5,100 per tonne in 2022.
For RHB Research, it expects Indonesia’s policies will continue to play a big part in the CPO price direction in 2023.
So far, Indonesia has reduced its domestic export quota from Jan 1, as a preventive measure against the potential increase in domestic cooking oil prices.
“While this should be positive for prices, we do not expect actual export volumes to be impacted significantly, as it will be a low crop season in the first quarter of 2023,” added the research house in its latest report.
Indonesia has also delayed its B35 biodiesel mandate from Jan 1 to Feb 1, and major importing countries China and India seem to favour CPO from Indonesia due to its zero-export levies.
On the local front, RHB Research expects output to grow further assuming labour issues are resolved, while demand should also continue to recover in light of the still relatively inexpensive pricing dynamics.
Hence, the research house continues to favour integrated players such as Kuala Lumpur Kepong Bhd (KLK) with a target price (TP) of RM27.85, IOI Corp Bhd (TP: RM4.60) and Wilmar International Ltd (TP: RM17.75).
It also sees value in players, namely, Sarawak Oil Palms Bhd, Bumitama Agri Ltd and Golden Agri-Resources Ltd.
MIDF Research, meanwhile, said the normalisation of ending palm oil stockpiles could push the CPO prices lower.
“Overall, we expect Malaysian local delivery prices to be lower in 2023, ranging between RM3,000 and RM4,000 per tonne, on expectation of normalisation closing stocks of two million to 2.1 million tonnes,” it noted.
Last year, CPO managed to settle at an average daily price of RM5,131.90 per tonne and monthly price of RM5,125.60 per tonne respectively.
“Another important factor is the discount parity between Malaysian and Indonesian CPO prices at US$154.90 per tonne or about RM536.80 per tonne, with a three-year average of US$204.60 (RM895) per tonne,” said MIDF Research.
It also expects the CPO price to see volatile trading between January and March at around RM3,500 to RM4,500 per tonne benefiting from price disparity between CPO against soybean oil price, which to-date amounted to US$455 (RM1,990) per tonne.
“Our top picks for plantation companies are Sime Darby Plantation Bhd (TP: RM5.50) and Sarawak Plantation Bhd (TP: RM2.60),” it added.
CGS-CIMB Research in its latest agribusiness report predicted that CPO prices would stay firm at RM3,800 to RM4,500 per tonne at the start of the first quarter of this year.
Among the concerns are supply risks due to drought in Argentina, which could lead to severe soybean crop losses, ongoing La Nina and potential El-Nino weather as well as the lower sunflower seed production from Ukraine due to the ongoing war with Russia, it said.
The research house expects CPO prices to soften from the second quarter of 2023 onwards as palm oil output recovers with the entry of more foreign workers, while slower global growth could curb demand.
In addition, local planters under its coverage are expected to post a 33% decline in net profit for 2023.
“This is because the CPO price could drop 25% to RM3,800 per tonne for 2023 and higher costs more than offset higher CPO output,” said the research house.
The research house’s top “value buy” picks, include KLK, Hap Seng Plantations Holdings Bhd and Ta Ann Holdings Bhd.
Similarly, Hong Leong Investment Bank Research has reiterated a “neutral” stance on the sector, given the absence of notable earnings growth catalyst.
“For exposure, we favour integrated players such as KLK (TP: RM25.19) and IOI (TP: RM4.16) over pure upstream players, as earnings of integrated players tend to be better insulated amidst volatile palm product price trends,” it said.