MARKET DEVELOPMENT
CPO To Buck Trend, Price to Increase?
CPO To Buck Trend, Price to Increase?
18/01/2016 (The Star) - A combination of lower production, the dry spell and resilient exports have led to brighter crude palm oil (CPO) outlook despite falling oil prices.
Analysts are expecting the prices of CPO to remain resilient in spite of the prevailing negative sentiments in capital markets and continuing fears of an economic slowdown in China.
“Normally CPO prices would follow oil price trends. It is also sensitive to economic developments in China. But production has been low since the beginning of fourth quarter last year and prices are slowly going up,” said a planter.
Analyst said that CPO production was on a seasonal decline and was expected to post its lowest output in February.
But they said demand in the overseas markets had been increasing.
“Preliminary export estimates for the first 10 days of January by Intertek, an independent cargo surveyor, suggest a healthy 15% month-on-month (m-o-m) increase to 0.32mil tonnes,” said Maybank IB Research in a sector report.
The lower production had led to reduced stockpile of CPO. The December 2015 palm oil inventory declined for the first time in six months, falling 4% to 2.63 million tonnes to beat consensus forecast of 2.73 million tonnes.
“The data is positive to CPO price as strong depletion in stocks suggests that demand has outpaced supply significantly in December 2015,” said MIDF Research analyst Alan Lim.
The November to December 2015 decline rate of 15% m-o-m was higher than the past five-year corresponding monthly period average decline of 12% m-o-m.
“Hence, we believe that the tree stress impact has started to kick in as a result of lagged effect from El Nino,” added Lim.
As such, Kenanga Research believes that moving forward, CPO production downtrend could persist to February this year, which is in line with historical production trends.
Thus, for January 2016, production is expected to continue declining 11% to 1.25 million tonnes, in line with the eight-year historical average.
The production uptrend is expected to resume in March this year onwards, although production in the first half is expected to be weaker than the corresponding period in 2015, due to the dry spell around August 2015.
Furthermore, weather forecasters opined that El Nino was likely to continue over the first quarter of 2016.
In the near term, CPO prices should be further boosted in the first half of 2016 due to positive investment sentiment.
Inventories are expected to normalise to less than 2 million tonnes by end of the first quarter of 2016 because of high existing stock levels.
With prolonged dry weather caused by the August 2015 droughts and the effects of El Nino, the potential production impact of the continued dry weather is expected to show in the fourth quarter of 2016.
CPO exports totalled at 1.48 million tonnes, which were slightly better than anticipated, at 5% above consensus forecast.
This was in spite of soft demand from India and China.
Total CPO exports to India was at 333,000 tonnes, which was a decline of 15% m-o-m, while exports to China totalled at 95,000 tonnes, registering the largest decline at 41% month-on-month (m-o-m).
“Lower demand for palm oil from China may be caused by lower consumption of palm oil during winter.
“As for India, the lower export may be caused by normalisation of demand after the stock-up activity ahead of Deepavali celebration on Nov 10, 2015,” said Lim.
The lower demand from China is expected to be offpaced by increasing exports to the eurozone. CPO exports to the eurozone totalled 265,000 tonnes, which was an additional 24% m-o-m.
The United States is the second largest contributor to make up for the decline in CPO exports after the eurozone, at 72% growth m-o-m and 72,000 tonnes.
Therefore, CPO prices could trend higher in early 2016 and peak some time in March till May 2016.
“We would expect CPO price to improve and range between RM2,400 per tonne to RM2,600 per tonne, with an average of RM2,500 per tonne in the first quarter of this year,” said Lim.
Maybank IB Research estimates CPO prices to possibly hit RM2,700 per tonne.
On Jan 14, 2015, CPO closed at RM2,402 per tonne. It was previously traded at RM2,500 per tonne on Dec 31, 2015.
Maybank IB Research would be cautious towards August, as they anticipate sharp CPO price correction in view of seasonally peak CPO output period.
Analysts are expecting the prices of CPO to remain resilient in spite of the prevailing negative sentiments in capital markets and continuing fears of an economic slowdown in China.
“Normally CPO prices would follow oil price trends. It is also sensitive to economic developments in China. But production has been low since the beginning of fourth quarter last year and prices are slowly going up,” said a planter.
Analyst said that CPO production was on a seasonal decline and was expected to post its lowest output in February.
But they said demand in the overseas markets had been increasing.
“Preliminary export estimates for the first 10 days of January by Intertek, an independent cargo surveyor, suggest a healthy 15% month-on-month (m-o-m) increase to 0.32mil tonnes,” said Maybank IB Research in a sector report.
The lower production had led to reduced stockpile of CPO. The December 2015 palm oil inventory declined for the first time in six months, falling 4% to 2.63 million tonnes to beat consensus forecast of 2.73 million tonnes.
“The data is positive to CPO price as strong depletion in stocks suggests that demand has outpaced supply significantly in December 2015,” said MIDF Research analyst Alan Lim.
The November to December 2015 decline rate of 15% m-o-m was higher than the past five-year corresponding monthly period average decline of 12% m-o-m.
“Hence, we believe that the tree stress impact has started to kick in as a result of lagged effect from El Nino,” added Lim.
As such, Kenanga Research believes that moving forward, CPO production downtrend could persist to February this year, which is in line with historical production trends.
Thus, for January 2016, production is expected to continue declining 11% to 1.25 million tonnes, in line with the eight-year historical average.
The production uptrend is expected to resume in March this year onwards, although production in the first half is expected to be weaker than the corresponding period in 2015, due to the dry spell around August 2015.
Furthermore, weather forecasters opined that El Nino was likely to continue over the first quarter of 2016.
In the near term, CPO prices should be further boosted in the first half of 2016 due to positive investment sentiment.
Inventories are expected to normalise to less than 2 million tonnes by end of the first quarter of 2016 because of high existing stock levels.
With prolonged dry weather caused by the August 2015 droughts and the effects of El Nino, the potential production impact of the continued dry weather is expected to show in the fourth quarter of 2016.
CPO exports totalled at 1.48 million tonnes, which were slightly better than anticipated, at 5% above consensus forecast.
This was in spite of soft demand from India and China.
Total CPO exports to India was at 333,000 tonnes, which was a decline of 15% m-o-m, while exports to China totalled at 95,000 tonnes, registering the largest decline at 41% month-on-month (m-o-m).
“Lower demand for palm oil from China may be caused by lower consumption of palm oil during winter.
“As for India, the lower export may be caused by normalisation of demand after the stock-up activity ahead of Deepavali celebration on Nov 10, 2015,” said Lim.
The lower demand from China is expected to be offpaced by increasing exports to the eurozone. CPO exports to the eurozone totalled 265,000 tonnes, which was an additional 24% m-o-m.
The United States is the second largest contributor to make up for the decline in CPO exports after the eurozone, at 72% growth m-o-m and 72,000 tonnes.
Therefore, CPO prices could trend higher in early 2016 and peak some time in March till May 2016.
“We would expect CPO price to improve and range between RM2,400 per tonne to RM2,600 per tonne, with an average of RM2,500 per tonne in the first quarter of this year,” said Lim.
Maybank IB Research estimates CPO prices to possibly hit RM2,700 per tonne.
On Jan 14, 2015, CPO closed at RM2,402 per tonne. It was previously traded at RM2,500 per tonne on Dec 31, 2015.
Maybank IB Research would be cautious towards August, as they anticipate sharp CPO price correction in view of seasonally peak CPO output period.