MARKET DEVELOPMENT
Nomura Sees CPO Price Advancing to RM2,300 in Next Three Months
Nomura Sees CPO Price Advancing to RM2,300 in Next Three Months
25/09/2015 (The Star) - The price of crude palm oil (CPO), currently 12% down, is expected to recover gradually on expectations of lower production due to the dry weather conditions brought on by the El Nino weather phenomenon.
Nomura Holdings Inc said in a report that prices, which had hit a six-year low in August and trading at a wide discount to soybean oil, could start increasing gradually to RM2,300 per tonne over the next three months.
According to Nomura analyst June Ng, “the low CPO price is not sustainable” and “extremely low”, which would be slightly above her financial year ending Dec 31, 2015 (FY15) forecast of RM2,200 per tonne. CPO prices have been trading at RM2,030 per tonne.
“The last time the CPO price traded at such a wide discount to soybean oil prices was during the last El Nino event in 2011/2012.
“Given the low CPO and soybean oil prices, we see limited downside,” she said in a report. Ng said the recent price recovery has been mainly due to short covering in the futures market as the haze and dry weather suggested lower production. Heavy haze would reduce sunlight reaching trees and disrupt harvesting during the peak production season.
However, Ng expects the price recovery to be short-term and that on a sequential basis, prices would continue to be flattish due to CPO and soybean supply growth.
“Based on Oil World forecasts, the palm oil global production will increase by 2.5 million tonnes between October and September 2016, despite the El Nino-caused draught losses in some producing regions in Malaysia and Indonesia,” she noted.
Ng maintains a negative view on Asean plantation stocks due to unattractive valuations at an average forecast FY16 price-to-earnings ratio of 17.2 times and price-to-book ratio of 1.6 times, slow CPO price recovery, a weak macro outlook due to slowing China demand, low crude oil prices, and a strong US dollar.
Nomura Holdings Inc said in a report that prices, which had hit a six-year low in August and trading at a wide discount to soybean oil, could start increasing gradually to RM2,300 per tonne over the next three months.
According to Nomura analyst June Ng, “the low CPO price is not sustainable” and “extremely low”, which would be slightly above her financial year ending Dec 31, 2015 (FY15) forecast of RM2,200 per tonne. CPO prices have been trading at RM2,030 per tonne.
“The last time the CPO price traded at such a wide discount to soybean oil prices was during the last El Nino event in 2011/2012.
“Given the low CPO and soybean oil prices, we see limited downside,” she said in a report. Ng said the recent price recovery has been mainly due to short covering in the futures market as the haze and dry weather suggested lower production. Heavy haze would reduce sunlight reaching trees and disrupt harvesting during the peak production season.
However, Ng expects the price recovery to be short-term and that on a sequential basis, prices would continue to be flattish due to CPO and soybean supply growth.
“Based on Oil World forecasts, the palm oil global production will increase by 2.5 million tonnes between October and September 2016, despite the El Nino-caused draught losses in some producing regions in Malaysia and Indonesia,” she noted.
Ng maintains a negative view on Asean plantation stocks due to unattractive valuations at an average forecast FY16 price-to-earnings ratio of 17.2 times and price-to-book ratio of 1.6 times, slow CPO price recovery, a weak macro outlook due to slowing China demand, low crude oil prices, and a strong US dollar.