Can CPO prices hold at RM6,000 a tonne level?

KUALA LUMPUR Feb 23 - Against all odds, crude palm oil (CPO) prices reached an all-time high of RM6,000 a tonne last week.

The main two factors? An estimated shortage of 30,000 foreign workers in Malaysia due to the closure of international borders amid the pandemic.

The second - the shortage of mainly foreign workers at estates have caused many fruits to rot on the trees leading to a shortfall in production.

So can CPO prices sustain at the RM6,000 a level for months to come?

Hong Leong Investment Bank (HLIB) Research and JP Morgan Malaysia said that CPO price will likely remain at elevated levels in the next few months – possibly until the first half of 2022.

HLIB research analyst Chye Wen Fei said the optimism is supported by weaker production outlook for corn and soyabean in South America.

"Indonesia's recent move to expand its export permit requirement for all palm oil products will also disrupt palm oil supply chain which will boost prices," HLIB told investors in its research note.

“While we continue to believe that a pullback in CPO price will materialise when palm oil output recovers, this hinges on several uncertainties,” said Chye in a plantation sector outlook.

“Besides, ESG (environmental, social and governance) concerns on the sector may have hit rock bottom and should ease soon.”

Meanwhile, JP Morgan Malaysia said that ASEAN plantation stocks may be back in vogue, especially among investors who are less tied up with sustainability metrics given they are able to ride on the strong CPO price rally.

JP Morgan had recently upgraded its call on the ASEAN plantation sector to “overweight” while upgrading its CPO price assumption against the backdrop of supply concerns amid years of reduction in new planting.

JP Morgan equities research head Jeffrey Ng said consistent cuts in Indonesia’s new planting since 2012 as well as Malaysia’s replanting efforts could mean that near-term supply growth will decelerate thus boosting CPO prices this year.

The surge in palm oil prices has been described by market analysts as "A super cycle supported by favourable factors amid supply constraints in the global oils and fats market."

Meanwhile, Malaysian Palm Oil Board data said the spike in CPO prices is further supported by the palm oil industry performance data for January 2022 which recorded a drop in CPO production by 13.54 percent due to shortage of labour for harvesting of fresh fruit bunches. 

CPO prices also soared riding on higher exports of palm oil which increased 18.67 percent month on month from 1.42 million tonnes in December 2021 to 1.57 million tonnes in January 2022 which has lowered total inventories.

Another factor in the buoyant CPO prices is due to depleting palm oil stockpile in January 2022 which fell 3.85 percent to 1.55 million tonnes from 1.61 million tonnes contributing to the price surge.

Most research houses expect IOI Corp, Genting Plantations, Sime Darby Plantations and Kuala Lumpur Kepong Bhd to be the darlings of investors.

It is clear that all signs point to robust CPO prices at least for the first half of this year.

Undoubtedly, smallholders and the rakyat who are shareholders of Permodalan Nasional Bhd which own stakes in some plantation firms are set to benefit. - DagangNews.com