CPO price forecast to hit RM4,000 this year

PETALING JAYA: The price of crude palm oil (CPO) is expected to average RM4,000 per tonne this year, before easing to RM3,800 per tonne in 2025.

The projection by Hong Leong Investment Bank Research (HLIB Research) is premised on the El Nino weather phenomenon’s impact on palm production and prices rising around mid-2024.

The research house maintained a “neutral” stance on the plantation sector, citing the absence of a notable demand catalysts.

In its report yesterday, HLIB Research said most plantation companies shared the view that CPO prices would likely hover around RM3,700-RM4,000 per tonne in 2024.

“We maintain 2024-2025 CPO price assumptions of RM4,000 per tonne and RM3,800 per tonne, respectively, as we expect El Nino’s impact on palm production and prices to kick in around mid-2024,” the research house said.

Year-to-date, CPO prices have averaged around RM3,883 per tonne.

Meanwhile, most planters expect CPO production costs to trend down in 2024 on the back of higher productivity and lower fertiliser prices, HLIB Research said, adding that the near-term prospects for downstream players would remain subdued.

“Most integrated players think that prospects for the downstream segment will likely be subdued in the near term due to overcapacity of refineries in Indonesia, weak global economy on top of high inventory levels held by customers, and geopolitical tensions,” HLIB Research said.

On the sector’s recent financial performance, the research house pointed out that, of the seven planters under its coverage, only three outperformed expectations for the fourth quarter (4Q) ended Dec 31, 2023. These were FGV Holdings Bhd, Genting Plantations Bhd and Hap Seng Plantations Holdings Bhd.

Two others – IOI Corp Bhd and TSH Resources Bhd – met expectations, while the other two – Kuala Lumpur Kepong Bhd and Sime Darby Plantation Bhd – underperformed.

When stacked against consensus, the notable difference was a higher proportion of disappointments (four of seven), while two were within and one came in above expectations, HLIB Research said.

It noted most planters registered weaker year-on-year performance in 4Q23, as fresh fruit bunch (FFB) output recovery (except for FGV) was more than offset by lower realised palm product prices, higher CPO production costs and weaker downstream earnings arising mainly from weaker margins at refining and oleochemical sub-segments.

On a quarter-on-quarter basis, performance was mixed despite seasonally lower cropping patterns.

“Despite seasonally lower FFB output, only four of seven planters (Genting Plantations, KLK, Sime Darby Plantation and TSH) registered weaker earnings, while FGV, Hap Seng Plantations and IOI reported stronger performances due to various reasons,” HLIB Research said.

These included the turnaround registered at FGV’s sugar subsidiary (arising from higher average selling prices and sales volumes, as well as incentives received for some packed sugar sold in the domestic market; higher CPO sales volume (arising from timing differences) in Hap Seng Plantations’ case; and the shift in cropping pattern at IOI’s estates (as evidenced by an 11% increase in FFB output).

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