Key factors driving CPO prices up

Analysts expect stiff competition from the largest palm oil producer, Indonesia, to continue, adding that high palm oil stock levels in importing countries could impact Malaysia’s exports of CPO. — Reuters

PETALING JAYA: Crude palm oil (CPO) stocks which rose 3% month-on-month to 2.27 million tonnes at end-January, may get some respite in the near-term due to key factors that will drive up the commodity’s price.

However, analysts expect stiff competition from the largest palm oil producer, Indonesia, to continue, adding that high palm oil stock levels in importing countries could impact Malaysia’s exports of CPO, moving forward.

They are projecting average CPO prices to hover between RM3,500 and RM4,000 per tonne for this year.

One of the key factors that would push up CPO prices in the near-term is the move by Indonesia to suspend some palm oil export permits to secure domestic supply amid rising cooking oil prices ahead of upcoming Islamic festivals.

It was reported that only about a third of existing export quotas of about 5.9 million tonnes at end-January could be used now, while the rest could be used after May 1.

This is likely to limit the volume of palm oil exports from Indonesia in the coming months and would be supportive of CPO price.

“Indonesia’s plans to raise its biodiesel mandate to 35% this month from 30% will spur palm oil usage in the republic which bodes well for CPO prices,” said analysts.

CGS-CIMB Research said the Malaysian government’s decision to ease conditions for hiring of foreign workers would boost palm oil supply in the second half of this year.

The research house said there could be potentially higher palm oil exports from Malaysia to the United States and Europe following the US Customs and Border Protection revocation of the Withhold Release Order against Sime Darby Plantation on Jan 31.

The weather development and soybean supplies from South America is also expected to have an effect on CPO prices.

CGS-CIMB Research, which is holding its “neutral” stance on the agrobusiness sector, expects CPO price to soften in the second half of the year and maintain its average CPO price forecast of RM3,800 per tonne for this year.

MIDF Research, which also maintained its “neutral” call on the plantation sector, said it expects a CPO target price of RM3,500 per tonne for this year.

It said CPO price would be volatile until March to close about RM3,500 to RM4,000 per tonne, benefiting from price disparity between CPO against soybean oil price which to date amounted US$445 (RM1,940) per tonne and three years average of US$246 (RM1,073) per tonne, based on three-month future price.

However, it noted several downside risks to the sector such as the fragile demand outlook on the back of inflationary pressure, coupled with tight household spending on high base interest rates locally and globally, as well as another Indonesian extension of zero-levy policy for palm oil exports in 2023.

Meanwhile, RHB Research said Malaysia could continue to be plagued by intense competition from Indonesia, while high palm oil stock levels at importing countries could also mean persistently weak exports going forward.

The only saving grace for exports in the coming months could be the Hari Raya Aidil Fitri festive season, it added.

Like other research houses, RHB is maintaining its “neutral” call on the sector and said it continues to favour integrated players like Kuala Lumpur Kepong Bhd, IOI Corp Bhd and Wilmar International Ltd.

Hong Leong Investment Bank Research opined that CPO stockpile would resume its downtrend this month on the back of seasonally low production cycle and higher exports demand from February.

This is as higher biodiesel admixture from February and lower export quota in Indonesia would likely boost export demand in Malaysia.

The research house is maintaining its 2023 to 2024 CPO price assumptions of RM4,000 per tonne and RM3,800 per tonne, respectively.It said CPO price would sustain at above RM4,000 per tonne over the next few months until the first quarter of this year before trending down from the second quarter.

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