KUALA LUMPUR – Palm oil inventories are expected to improve, bolstered by the stronger seasonal palm oil cycle, MIDF Research said.
The research house opined that the crop’s output would see seasonal recovery moving into the third quarter of 2021 (Q3 2021), noting that the domestic palm oil inventory has been recovering since March, rising by 10.6% month-on-month to 1.4 million tonnes.
Reiterating its positive call on the sector, with a revised crude palm oil (CPO) target price of RM3,200 per tonne from RM3,000 per tonne previously, MIDF said that the palm oil price will not ease drastically or go below the RM2,500 level.
This is based on several factors, it said, including unresolved labour shortages due to the ongoing border closure, implementation of the movement control order (MCO) rules on agribusiness, upbeat export demand, slow production growth and firm demand for palm oil-based biodiesel.
“On the demand front, we believe replenishment activities will continue to be healthy into calendar year 2021 (CY21), supported by the resumption of economic activities following the acceleration of vaccination programmes,” it said.
Moving forward, it expects China to remain as a bright spot in export demand.
“Based on our observation, we note that China and India have emerged as the top Malaysian palm oil importer with a share of 26.8% (China: 8.9%, India: 17.9%) with total export demand growth of +67.1% year-on-year in Q1 2021,” it said in a note.
However, MIDF anticipates the CPO price to soften in the second half of the year as production is expected to recover due to better weather condition, thus leading to higher stockpiles.
It also cautioned that higher soybean production will likely impact CPO price negatively, noting that the United States Department of Agriculture (USDA) has increased its forecast for Brazilian soybean production by one million tonnes to 137 million tonnes.
“The higher forecast for soybean production is attributable to the better weather condition and faster-than-average soybean planting, which is likely to support yield and overall production.
“This is negative to CPO price as high soybean stocks will eventually lead to higher supply of soybean oil (SBO),” said MIDF.
It highlighted that CPO price is strongly correlated with SBO as both commodities are commonly used as each other’s substitute in the food manufacturing industry. – Bernama, June 25, 2021
