MARKET DEVELOPMENT
Positive Push for CPO Price
Positive Push for CPO Price
15/01/2014 (The Star) - With a softer outlook on the palm oil inventory for the first half of this year, the crude palm oil (CPO) price is expected to strengthen over the period backed also by expected better biodiesel consumption.
RHB Institute Research analyst Alvin Tai has noted that inventory would ease in the months ahead, providing a lift to palm oil prices. A stronger price catalyst, he believes, however, is in the form of Indonesian state-owned energy firm Pertamina’s upcoming second biodiesel tender.
“We believe palm oil prices will strengthen progressively throughout 2014 due to lacklustre production in Indonesia, as a result of rainfall deficit over the past two years.
“We believe more price strength will be seen in the second quarter, as production weakness becomes more apparent. Weak first-quarter production is likely to be perceived as seasonal in nature,” he said in a note.
Tai said palm oil prices had retraced in the past two weeks, as Indonesia’s mandatory biodiesel programme encountered hiccups due to pricing issues. Pertamina only managed to secure 18% of the three million tonnes of biodiesel supply required, which was sufficient for two months’ consumption.
The stronger catalyst for the CPO price, he said, would be Pertamina’s upcoming second biodiesel tender expected to be on Jan 21.
Tai viewed the price pullback as temporary, providing a buying opportunity. “The main stumbling block for palm oil prices to charge higher at this point in time is the relatively narrow discount to soybean oil at US$65 (RM212) per tonne. On the flip side, this also means there is a US$65 upside for the palm oil price before it comes to parity against the soybean oil price.”
He cited CPO price trends in 2009 and 2010 where poor palm oil production led to the parity price against soybean oil.
Kenanga Research analyst Alan Lim said the inventory uptrend should have ended, which bodes well for CPO prices. The January inventory is expected to decline by 2% month-on-month to 1.95 million tonnes.
“On the supply side, we have assumed a 16% decline month-on-month to 1.4 million tonnes in line with the seasonal trend. On the demand side, exports should slip 15% to 1.28 million tonnes due to the very cold winter in the northern hemisphere, as palm oil is used less in cold temperatures.
“Overall, the expected first inventory downtick in five months would be positive for CPO prices.”
Lim pointed out that Malaysia’s palm oil import from Indonesia last December remained very low at 24,574 tonnes, or 72% lower year-on-year, a sign that Indonesia was committed in implementing its biodiesel plan.
In the long run, the biodiesel plan, which has spurred higher domestic palm oil usage, thus curbing its export and lessening the export competition with Malaysia, is positive to CPO prices and benefits both countries.
To that, Public Invest Research sector analyst Chong Hoe Leong concurred: “We see a better CPO outlook this year, premised on better domestic biodiesel consumption in Indonesia and Malaysia, which would help keep inventories at a comfortable level.”
Chong believes in a stronger CPO price performance in the first half due to tight inventories before weakening slightly in the second. “Our 2014 CPO price forecast is RM2,750 per tonne.”
Palm oil inventories closed at 1.98 million tonnes for 2013, the lowest level since 2010, while CPO prices averaged at RM2,435 per tonne in 2013, 17% lower compared with RM2,935 per tonne in 2012.
Hwang-DBS Vickers Research also believes that investors should wait for value to emerge within the plantation sector, although it is a good time to seek out laggard palm oil counters.
“We believe palm oil prices and regional plantation stocks remain in correction mode. However, in our view, palm oil prices may be close to bottoming.”
RHB Institute Research analyst Alvin Tai has noted that inventory would ease in the months ahead, providing a lift to palm oil prices. A stronger price catalyst, he believes, however, is in the form of Indonesian state-owned energy firm Pertamina’s upcoming second biodiesel tender.
“We believe palm oil prices will strengthen progressively throughout 2014 due to lacklustre production in Indonesia, as a result of rainfall deficit over the past two years.
“We believe more price strength will be seen in the second quarter, as production weakness becomes more apparent. Weak first-quarter production is likely to be perceived as seasonal in nature,” he said in a note.
Tai said palm oil prices had retraced in the past two weeks, as Indonesia’s mandatory biodiesel programme encountered hiccups due to pricing issues. Pertamina only managed to secure 18% of the three million tonnes of biodiesel supply required, which was sufficient for two months’ consumption.
The stronger catalyst for the CPO price, he said, would be Pertamina’s upcoming second biodiesel tender expected to be on Jan 21.
Tai viewed the price pullback as temporary, providing a buying opportunity. “The main stumbling block for palm oil prices to charge higher at this point in time is the relatively narrow discount to soybean oil at US$65 (RM212) per tonne. On the flip side, this also means there is a US$65 upside for the palm oil price before it comes to parity against the soybean oil price.”
He cited CPO price trends in 2009 and 2010 where poor palm oil production led to the parity price against soybean oil.
Kenanga Research analyst Alan Lim said the inventory uptrend should have ended, which bodes well for CPO prices. The January inventory is expected to decline by 2% month-on-month to 1.95 million tonnes.
“On the supply side, we have assumed a 16% decline month-on-month to 1.4 million tonnes in line with the seasonal trend. On the demand side, exports should slip 15% to 1.28 million tonnes due to the very cold winter in the northern hemisphere, as palm oil is used less in cold temperatures.
“Overall, the expected first inventory downtick in five months would be positive for CPO prices.”
Lim pointed out that Malaysia’s palm oil import from Indonesia last December remained very low at 24,574 tonnes, or 72% lower year-on-year, a sign that Indonesia was committed in implementing its biodiesel plan.
In the long run, the biodiesel plan, which has spurred higher domestic palm oil usage, thus curbing its export and lessening the export competition with Malaysia, is positive to CPO prices and benefits both countries.
To that, Public Invest Research sector analyst Chong Hoe Leong concurred: “We see a better CPO outlook this year, premised on better domestic biodiesel consumption in Indonesia and Malaysia, which would help keep inventories at a comfortable level.”
Chong believes in a stronger CPO price performance in the first half due to tight inventories before weakening slightly in the second. “Our 2014 CPO price forecast is RM2,750 per tonne.”
Palm oil inventories closed at 1.98 million tonnes for 2013, the lowest level since 2010, while CPO prices averaged at RM2,435 per tonne in 2013, 17% lower compared with RM2,935 per tonne in 2012.
Hwang-DBS Vickers Research also believes that investors should wait for value to emerge within the plantation sector, although it is a good time to seek out laggard palm oil counters.
“We believe palm oil prices and regional plantation stocks remain in correction mode. However, in our view, palm oil prices may be close to bottoming.”