PETALING JAYA: UOB Kay Hian (UOBKH) Research is keeping its upbeat outlook on the plantation sector, fuelled by expectations that crude palm oil (CPO) prices will trend higher from the fourth quarter of 2023.
In a research note yesterday, the firm cited Oil World executive director Thomas Mielke, who predicted that CPO prices would appreciate by at least US$100 per tonne within the next four to six months, in anticipation of a supply deficit in 2024.
UOBKH Research said Mielke’s CPO price forecast was in line with its prediction.
“Mielke highlighted that major vegetable oil (vegoil) prices are currently undervalued due to ample global inventories at present.
“However, prices should appreciate with the anticipation of a potential global vegoil production deficit in 2024,” said the research house.
As a result, it believed palm oil will be the price leader in 2024 and its pricing discount gap to soyoil should narrow as supply tightens after the strong CPO inventory drawdown in Indonesia, which is already producing four million tonnes less up to August 2023 compared to a year ago.
UOBKH Research said higher CPO prices are projected between October this year and September 2024, due to below-average production growth and declining stocks, which is a mild consequence of the present dry weather.
It said the current uncertain weather pattern in South Africa may also affect soybean production, thereby possibly boosting prices for the crop.
Having said that, UOBKH Research sees a number of deviating trends for soybean and oil palm.
“Palm oil has lost its growth dynamics, which will raise global dependence on soybean, sunseed and rapeseed.
“During the past three years, oil palm planted areas only increased by about half-a-million ha, compared to soybean planted area at 4.9 million ha,” it observed.
On top of that, the research outfit said soybean productivity yield is on a rising trend, in stark contrast to the palm oil yield, which is declining.
It added that with rising worldwide vegoil demand and slower growth from palm oil, global expansion for the plantation sector has to come from higher oil yield crops such as sunflower and rapeseed or prices need to be very attractive as farmers plant on marginal land.
UOBKH Research estimated the annual production growth rate for palm oil for 10 years up to 2030 to be 1.8 million tonnes per year, against the 2.9 million tonnes annually for the 10-year period up to 2020.
It pointed out that soybean production would reach a record high in 2023 or 2024, mainly due to the huge planting expansion in Brazil – which had seen an increase of six million ha in the past three years – exceeding the total palm oil area in Malaysia.
According to Oil World, biodiesel production for 2023 is expected to grow by at least 8.2% year-on-year to 56.5 million tonnes.
It said the European Union is projected to be the largest biodiesel producer at 15.1 million tonnes this year, followed by the United States at 12.8 million tonnes, noting that these biodiesel productions have doubled in the past 10 years.
Reiterating its “overweight” call on the local plantation sector, UOBKH Research named Hap Seng Plantations Holdings Bhd and IOI Corp Bhd among its top picks, with target prices of RM2.65 and RM4.80 a share, respectively.