PETALING JAYA: Crude palm oil (CPO) prices are expected to be firm at around RM4,000 to RM4,500 per tonne this year and next year as weather-related disruptions continue to weigh on fresh fruit bunch (FFB) production, says Rakuten Trade head of equity sales Vincent Lau.
Lau said as such, plantation companies, whether large or mid-sized, should continue to perform well.
“Even if CPO prices were to ease below RM4,000 per tonne, say to around RM3,800, margins would still be healthy compared with many manufacturing businesses, which typically operate on margins of about 5%.
“This is why share prices of plantation companies like Johor Plantations Group Bhd
and Sarawak Oil Palms Bhd have performed well,” he told StarBiz.
Lau said other factors influencing CPO prices, besides weather-related conditions, include resilient demand, biodiesel policies and crude oil prices.
“When crude oil prices are high, biodiesel becomes more attractive, supporting palm oil demand,” he said.
“However, even if crude oil prices fall, mandatory biodiesel blending programmes in Malaysia and Indonesia will continue to support demand. Either way, biodiesel helps sustain CPO prices.”
AmInvestment Bank Research said with El Nino and a positive Indian Ocean Dipole, one of the hottest periods on record could be taking place at the end of this year. The research house said a positive Indian Ocean Dipole means elevated sea surface temperatures.
“After El Nino, however, there could be periods of heavy rains, which implies that FFB production could be weak throughout 2027.
“We believe that unfavourable weather conditions coupled with Indonesia’s B50 biodiesel policy would boost CPO prices,” AmInvestment Bank Research said in a report recently.
The research house said based on historical patterns, FFB yields might fall by 10% to 14% in the first year of El Nino and another 3% to 4% in the second year.
For the country as a whole, CPO production slid by 13.2% in 2016 and 8.3% in 1998 after El Nino in the previous years.
“We gather that Sabah and Sarawak may be more affected by El Nino while in Indonesia, Kalimantan and Sumatra are likely to be hit. Sarawak may be affected severely by El Nino as it has many peatlands and peat accentuates the heat.
“Areas with less forest coverage would also be affected. Oil palm estates, which are near high value forest areas, would suffer less from El Nino,” AmInvestment Bank Research said.
The research house said it is currently reviewing its average CPO price assumption of RM4,400 per tonne for 2027.
It said oil palm trees in the youngest and oldest age ranges would be hit by El Nino more severely compared to those in the middle age range of six to 20 years.
