KUALA LUMPUR – Research houses have maintained a “neutral” rating on the plantation sector as the palm oil supply tightness is expected to remain until year-end, given the weaker output during the post-peak production period.
In a note, MIDF Research said the lower output could be attributed to the rainy season and labour shortage, which delayed harvesting and lowered collection of quality fresh fruit bunches.
It noted that export momentum had started to slow down in India, post-Deepavali festive period, as well as in other countries, given the current elevated crude palm oil (CPO) price which might impede consumption.
“Nonetheless, we expect China’s replenishing activities to continue in the coming months ahead of the major Chinese New Year festival in the first quarter of 2021.
“As such, we foresee inventory levels possibly remaining tight in the coming months as the industry is experiencing weaker production growth that would possibly lend support to the CPO price,” it said.
Moving forward, the research house expects CPO prices to hover at an average of RM2,600 a tonne in 2021.
Meanwhile, Maybank Kim Eng estimated that Malaysian Palm Oil Board’s (MPOB) stockpile for December would likely to stay below 1.6 million tonnes, while the present tight supply would help to sustain CPO price’s parity with the United States’ soybean oil in the near term.
“We maintain our 2021 CPO average selling price forecast of RM2,500 per tonne, anticipating weaker palm oil prices in the second half of 2021 when output normalises,” it said in a note today.
The research firm said key risks for the forecast were strong rebound in crude oil prices, worse-than-expected palm oil output recovery in 2021, and worse-than-expected soybean crop developments in South America due to La Nina.
CGS-CIMB also projected palm oil stocks to fall by 6% to 1.48 million tonnes at the end of December, with output down by 10% and exports flat month-on-month.
“We expect output to be lower due to seasonal factors, and exports to be flat as we anticipate traders to boost palm oil shipments ahead of the reinstatement of CPO export tax in January 2021, which we estimate to be in the range of 7.5%,” it said.
It noted that Malaysia’s palm oil stock fell by 31% year-on-year to 1.57 million tonnes at end-November 2020, the lowest stock level for the month of November since 2004.
“The declining trend is a divergence from its 10-year historical trend, where the average palm oil stock level in Malaysia at end-November for the past 10 years has been around 2.3 million tonnes,” it said.
Another research company, Kenanga Research predicts the decline in exports will narrow to 2.4% by year-end.
“However, demand should pick up ahead of Christmas and New Year festivities, while the impact from India’s CPO import duty reduction is expected to kick in the later part of December.
“Exports to India could also rise further in January as some importers may have already pre-arranged for December shipments before the duty reduction,” it said. – Bernama, December 11, 2020
