UNDER PRESSURE: A palm oil estate worker unloads harvested fruit bunches from a lorry at a factory in Perak.
Prices for CPO remain suppressed with downside pressure from several factors including high inventory stock
levels of the commodity and moderating demand from importing countries. — Bloomberg photo

01/05/2013 (Borneo Post) - Average selling prices (ASPs) for crude palm oil (CPO) remain suppressed with downside pressure from several factors including high inventory stock levels and moderating demand from importing countries.

Remarking on the lacklustre outlook for the commodity, the research division of Hong Leong Investment Bank Bhd (HLIB Research) stated that it was ‘increasingly difficult’ for CPO price to achieve its in-house average CPO price forecast of RM2,800 per metric tonne (mt).

This was on the back of the weak sentiment arising from bumper soybean crop from the South America being ‘negative’ for soybean oil price, which would in turn cap the upside of CPO price, HLIB Research pointed out.

Furthermore, demand from major palm oil consuming nations was unlikely to pick up significantly in the near term, the research team added.

“High stockpiles in both China and India will likely limit sig­nificantly pick-up in demand from these two countries.

“On the other hand, biodiesel consumption outlook in the Euro­pean Union remains uninspiring,” it opined, citing a lower mandatory biodiesel consumption target in Spain and the European Commis­sion’s proposal to impose a five per cent cap on crop-based biofuel for transportation as significant factors.

“Year to date, CPO spot price averaged at RM2,318 per mt, 17 per cent below our 2013 average CPO price of RM2,800 per mt, which also means CPO price would have to average at RM3,040 per mt for the remaining months in 2013 in order to achieve our average CPO price projection.

“In view of the disappointing CPO price movement year to date and the lack of near-term positive demand catalyst, we are lowering our aver­age CPO price assumption in 2013 by RM300 to RM2,500 per mt, and lowering our assumption in 2014 and beyond by RM200 to RM2,600 per mt,” the research arm said.

As a result, 2013 to 2015 net profit forecasts of plantation companies under HLIB Research’s coverage were lowered by 1.6 to 20.5 per cent to reflect the lower CPO price assumptions for the corresponding period.

“We believe first quarter 2013 results will likely disappoint again, given the lower CPO price achieved. Low CPO prices aside, we note that production cost may come in higher than expected,” it opined.