Crude palm oil prices to crash soon?

KUALA LUMPUR April 15 - According to quantum physics, anything which goes up, must come down.

Isaac Newton's law of gravity also applies to crude palm oil (CPO) prices.

After surging to an all time high of RM8,000 a tonne, traders expect CPO prices to crash at an indefinite time.

CPO prices soared way too high riding on the Russia-Ukraine war sentiment without any fundamental reason to back up the spike.

And now, CPO prices have lost steam dipping to RM6,000 a tonne. 

"Current prices are not sustainable," CGS-CIMB head of equities Ivy Ng told BFM.

CPO prices rose too quickly due to knee jerk reactions and thus is not sustainable.

Borders reopening - workers' shortage 

With the reopening of international borders, foreign plantation workers who were previously barred from entering are expected to return.

With the return of some foreign workers to the estates, the sector's production shortage will be alleviated somewhat.

This will soften up CPO prices to lower levels.

Profit taking activities will push down CPO prices

Just like in any money markets, be it stock or commodities, profit taking activities would have taken place right now.

Meaning, investors who placed their bets before the Ukraine-Russian war, would have reaped their profis by now.

Thus, CPO prices may weaken in the immediate term.

CPO price may remain high until June 2022

Hong Leong Investment Bank Berhad meanwhile disagrees.

The investment research house said CPO price is expected to remain at elevated levels, possibly until the first half of 2022.

This will be supported by weaker production outlook for corn and soybean in South America as well as geopolitical tension.

HLIB said the geopolitical tension would likely result in supply disruption in sunflower and rapeseed oils, as well as protracted fertiliser supply.

This will give a push to CPO to remain high.

Over the longer term however, HLIB continues to believe that a pullback in CPO price will materialise when palm oil output recovers, which in turn hinges on the entrant of foreign workers into Malaysian shores. 

"Based on our estimates, every RM100 per tonne raise in our CPO price projection will lift earnings forecasts for plantation stocks under our coverage by 3.5-15.0 per cent," it said.

HLIB said palm oil stockpile remained on a downtrend for the fifth consecutive month, declining by 3.0 per cent month-on-month to 1.47 million tonnes in March 2022.

This was driven by the output recovery being more than offset by higher exports and domestic consumption, coupled with lower imports, it said.

"We maintain 2022 to 2024 CPO price assumptions of RM4,300/RM3,300/RM3,300 per tonne.

"Overall, we reiterate our overweight stance on the sector, underpinned by high near term CPO prices (which will in turn translate to good near term earnings prospects), easing environmental social governance (ESG) concerns and decent valuations," it added. - DagangNews.com