05/12/2012 (The Star) - Expectations of record high local palm oil stocks in November and December will likely drag the average crude palm oil (CPO) this year to below RM3,000 per tonne mark versus last year's average of RM3,219 per tonne, according to industry observers and analysts.

They believe that the CPO average price will likely range between RM2,800 and RM2,900 per tonne as CPO futures continue to trend downwards on bearish export outlook and high palm oil stocks situation in Malaysia and Indonesia.

Many were hoping to get a clearer indication on the CPO price direction next week when the Malaysian Palm Oil Board releases its latest November palm oil statistics on Monday.

CPO futures on Bursa Derivatives Exchange yesterday extended its losses for the sixth day the longest losing streak since November 2011 with the third-month benchmark CPO contract for February as at 5pm traded RM20 lower at RM2,295 per tonne.

A Johor-based mid-sized planter told StarBiz that the downtrend in CPO prices could linger till the first quarter of 2013 as the year-end palm oil stocks level could stay near record high levels at 2.5 million to 3 million tonnes thus putting a lid on CPO prices to trade above RM2,500 per tonne.

On the other hand, he said the high stocks could decline as major importer China was expected to stock up its palm oil purchase following the upcoming Chinese Lunar New Year next February.

A palm oil trader pointed out that with January to March being traditionally low CPO production months, it would also mean that existing high stock situation could be reduced further as the attractive higher discount in CPO price to soyoil price would start to attract price-sensitive consumers like India and Pakistan.

Meanwhile, Kenanga Research in its latest plantation report has revised downward its CPO average price forecast for 2012 to RM2,900 from RM2,975 per tonne previously.

Similarly, its CPO average price forecast for 2013 has also been slashed to RM2,850 from RM3,000 per tonne before.

The research unit also expects CPO inventory for November to stay “stubbornly high” at 2.49 million tonnes and this should keep the CPO price upside limited.

On the demand side, Kenanga Research assumed CPO exports to increase by 5% month-on-month to 1.85 million tonnes in November as “China trader is expected to stock up refined palm oil ahead of tighter regulations on edible oil imports from 2013 onwards.”

On the supply side, the unit expects 6% mon-on-month decline in CPO production to 1.82 million tonnes, which is in line with historical seasonal fresh fruit bunches volume decline mon-on-month last month.

“Tentatively, our forecast shows that inventory shall remain close to its historical high level of 2.51 million tonnes and keep CPO prices upside limited below RM2,500 in the near term,” it added.

Looking forward, Kenanga Research foresees a massive “earnings cliff” in the coming earnings reporting season come February 2013 as “the fourth quarter 2012 earnings are poised to tumble at least 30% year-on-year and 20% quarter-on-quarter.”

It noted that the recently-announced third-quarter results for planters under Kenanga Research's coverage were generally uninspiring with 56% of planters under the coverage reporting earnings below the consensus estimate.

“This was mainly caused by the lower-than-expected selling prices for CPO,” it added.

Out of the nine planters under Kenanga Research's coverage, five of them missed their consensus earnings estimates in the third quarter.

Companies such as IOI Corp Bhd, Felda Global Ventures Holdings Bhd, Genting Plantations Bhd, IJM Plantations Bhd and TSH Resources Bhd were below expectation due to the lower-than-expected selling prices for CPO while others suffered from a longer-than-expected tree stress.