MARKET DEVELOPMENT
Still Positive on Plantations Sector Despite High Chances of El Nino
Still Positive on Plantations Sector Despite High Chances of El Nino
05/06/2014 (Borneo Post) - Analysts are still positive on Malaysia’s plantations sector despite the recent threat of lower crude palm oil (CPO) price and heightened chances of El Nino occuring in Malaysia.
The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) in a research note yesterday recapped thatCPO price ended lower earlier this week at RM2,395 per metric tonne as market sentiments were dented by reports of Malaysian palm oil inventories likely to breach two million metric tonne by year-end.
“However, we hold a contrarian view as we expect CPO prices to rebound in the second half of this year underpinned by increase in purchases from India, China and Pakistan due to the upcoming festive season,” it said.
“Also, the current inventory level in Malaysia is still healthy at 1.77 million metric tonne in April, and impending El-Nino in second half of this year will exert upward pressure on CPO prices in anticipation of lower production in 2015.”
Meanwhile, on the weather condition, the Australian Bureau of Meteorology (ABM) said that the El Nino–Southern Oscillation (ENSO) Tracker status remains at El Nino ‘alert’ level.
“It indicates that there is at least a 70 per cent chance of an El Nino occurring this year. Additionally, it also suggests that El Nino will become established by August 2014,” MIDF Research added.
In a separate note, the research firm of Maybank Investment Bank Bhd (Maybank IB Research) expected a flattish quarter-on-quarter (q-o-q) upstream earnings in the second quarter of 2014 (2Q14) on the back of the drop in CPO price.
“The decline in CPO price should be offset by higher q-o-q fresh fruit bunches. However, a pick-up in manuring activity which is typical in 2Q is likely to bump up the estate’s cost of production (per CPO tonne),” the research firm said.
On a year-on-year (y-o-y) comparison, it opined that earnings are likely to be stronger, driven by higher FFB output for 2Q14, and higher CPO average selling price as spot prices were significantly lower in 2Q13 at RM2,324 per tonne.
Aside from that, it reiterated its view that CPO price would remain weak, ranging between RM2,400 per tonne and RM2,600 per tonne in May to June 2014.
It attributed its view to concerns over ample global oilseeds supply once the South American harvests hit the global market, and the recently announced planting intention in the US which favours soybean planting over corn.
It said, CPO prices traditionally weaken towards the middle of the year in anticipation of larger CPO output in the second half (2H) of the year.
Overall, Maybank IB Research remained neutral on the plantations sector towards mid-year with key upside risk being the return of a strong El Nino in 2H14.
The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) in a research note yesterday recapped thatCPO price ended lower earlier this week at RM2,395 per metric tonne as market sentiments were dented by reports of Malaysian palm oil inventories likely to breach two million metric tonne by year-end.
“However, we hold a contrarian view as we expect CPO prices to rebound in the second half of this year underpinned by increase in purchases from India, China and Pakistan due to the upcoming festive season,” it said.
“Also, the current inventory level in Malaysia is still healthy at 1.77 million metric tonne in April, and impending El-Nino in second half of this year will exert upward pressure on CPO prices in anticipation of lower production in 2015.”
Meanwhile, on the weather condition, the Australian Bureau of Meteorology (ABM) said that the El Nino–Southern Oscillation (ENSO) Tracker status remains at El Nino ‘alert’ level.
“It indicates that there is at least a 70 per cent chance of an El Nino occurring this year. Additionally, it also suggests that El Nino will become established by August 2014,” MIDF Research added.
In a separate note, the research firm of Maybank Investment Bank Bhd (Maybank IB Research) expected a flattish quarter-on-quarter (q-o-q) upstream earnings in the second quarter of 2014 (2Q14) on the back of the drop in CPO price.
“The decline in CPO price should be offset by higher q-o-q fresh fruit bunches. However, a pick-up in manuring activity which is typical in 2Q is likely to bump up the estate’s cost of production (per CPO tonne),” the research firm said.
On a year-on-year (y-o-y) comparison, it opined that earnings are likely to be stronger, driven by higher FFB output for 2Q14, and higher CPO average selling price as spot prices were significantly lower in 2Q13 at RM2,324 per tonne.
Aside from that, it reiterated its view that CPO price would remain weak, ranging between RM2,400 per tonne and RM2,600 per tonne in May to June 2014.
It attributed its view to concerns over ample global oilseeds supply once the South American harvests hit the global market, and the recently announced planting intention in the US which favours soybean planting over corn.
It said, CPO prices traditionally weaken towards the middle of the year in anticipation of larger CPO output in the second half (2H) of the year.
Overall, Maybank IB Research remained neutral on the plantations sector towards mid-year with key upside risk being the return of a strong El Nino in 2H14.