PETALING JAYA: With crude palm oil (CPO) prices having corrected earlier than expected, inventory levels are likely to rise over the next few months.
Taking this into consideration, UOB Kay Hian (UOBKH) Research has revised its CPO price assumption to RM4,200 per tonne, from RM4,500 previously.
“Since December 2024, we have been reiterating our view for CPO prices to peak early in the first quarter of 2025 (1Q25), backed by Indonesia’s B40 biodiesel mandate rollout, and correct thereafter, as palm oil production enters its peak season and supply-demand balances loosen up once again.
“Notwithstanding our right timing call, we downgrade our 2025 average CPO price forecast to RM4,200 mainly as 1Q25 CPO peak prices fell short of our expectations of above RM5,000 amid delays to Indonesia’s B40 implementation at the start of the year,” the research house said in a report yesterday.
It said the new CPO price assumption partly accounted for the ongoing spot price correction towards RM4,100, which was a little sooner than it had previously anticipated.
UOBKH Research expects CPO prices to remain soft until 3Q25 as palm oil inventory levels build up rapidly, given that Malaysia and Indonesia could potentially ramp up production strongly this season.
“That said, we deem this to be a healthy price correction for CPO, and also see downside support for CPO at the RM3,800 to RM4,000 per tonne mark, as CPO has started to regain price competitiveness against rival oils, particularly against soybean oil, which is trading at a premium to CPO after surging sharply in recent weeks.”
Hence, palm oil export volumes are expected to pick up stronger from 2Q25 and recoup some of its vegetable oil market share in key markets including China and India. Both countries had opted to import more soybean oil recently when CPO began to trade at a premium.
In tandem with the lowered 2025 CPO price forecast, UOBKH Research said it had cut earnings of companies under its coverage by approximately 9%.
However, it anticipated improved downstream contribution of integrated plantation companies. The segment is expected to register a progressive recovery in processing margins.
Where equity performance of the stocks are concerned, it expects them to be muted in the near term.
It said current sector multiples, at minus 0.5 standard deviation to five-year price-earnings mean still looks relatively fair.
“We downgrade SD Guthrie Bhd
from ‘buy’ to ‘hold’ but maintain ‘buy’ on Hap Seng Plantations Bhd for its inexpensive valuations.”
