MARKET DEVELOPMENT
Promising Long-term Outlook For Palm Oil
Promising Long-term Outlook For Palm Oil
02/08/2016 (The Star) - Despite a neutral stance on the palm oil sector, investors are generally keen on the sector’s long-term outlook but less bullish on its near term prospect, says CIMB Research.
The reason is that crude palm oil (CPO) prices have failed to meet the forecasts to reach RM3,000 per tonne, despite the weaker-than-expected palm oil supplies.
CPO prices have also fallen from the peak of RM2,714 per tonne in April to RM2,342 per tonne currently.
CIMB Research, which recently met with 60 local fund managers and analysts from 20 investment firms in Kuala Lumpur to gauge on their sentiment, said: “Investors are keen to discuss on the CPO price outlook and looking to add exposure in the sector when the time is ripe.”
At the meeting, CIMB Research discussed its views on the CPO price for the second half of 2016 and 2017, falling demand from China, the El Nino impact on palm oil supply, biodiesel plans of Malaysia and Indonesia, US soybean supply prospects and the top picks.
On CPO prices failed to meet the higher expectations, CIMB Research explained that poor palm oil demand from China had led to weaker prices.
“This is evidenced from the 50% year-on-year drop in China demand for local palm oil in the first half of this year as the Chinese government released two million tonnes of rapeseed oil from state reserves.
“The good news is that the Chinese government has stop releasing rapeseed oil from state reserves in recent months but this is offset by concern that the government still holds around four million tonnes of rape oils in its reserves,” it said.
Other key drivers for CPO prices in the second half of 2016 and 2017 include the impact of El Nino and La Nina on palm oil supplies next year, the progress of Indonesia and Malaysia’s biodiesel mandates and the prospects of US soybean crops in second half of 2016.
CIMB Research is maintaining its average CPO price forecasts at RM2,450 per tonne for full-year 2016 and RM2,600 per tonne for 2017.
Among CIMB Research top picks, Felda Global Ventures Holdings Bhd (FGV) and IOI Corp Bhd were the companies that investors asked most during the meeting.
The research unit highlighted to investors that FGV had a lot of potential to unlock and its share price is attractive as “it trades below its book value.”
As for IOI Corp, its ongoing Roundtable on Sustainable Palm Oil (RSPO) suspension case is still pending the RSPO review.
CIMB Research, which is “neutral” on the agribusiness sector, has an “add” call on FGV and a “hold” on IOI Corp.
The reason is that crude palm oil (CPO) prices have failed to meet the forecasts to reach RM3,000 per tonne, despite the weaker-than-expected palm oil supplies.
CPO prices have also fallen from the peak of RM2,714 per tonne in April to RM2,342 per tonne currently.
CIMB Research, which recently met with 60 local fund managers and analysts from 20 investment firms in Kuala Lumpur to gauge on their sentiment, said: “Investors are keen to discuss on the CPO price outlook and looking to add exposure in the sector when the time is ripe.”
At the meeting, CIMB Research discussed its views on the CPO price for the second half of 2016 and 2017, falling demand from China, the El Nino impact on palm oil supply, biodiesel plans of Malaysia and Indonesia, US soybean supply prospects and the top picks.
On CPO prices failed to meet the higher expectations, CIMB Research explained that poor palm oil demand from China had led to weaker prices.
“This is evidenced from the 50% year-on-year drop in China demand for local palm oil in the first half of this year as the Chinese government released two million tonnes of rapeseed oil from state reserves.
“The good news is that the Chinese government has stop releasing rapeseed oil from state reserves in recent months but this is offset by concern that the government still holds around four million tonnes of rape oils in its reserves,” it said.
Other key drivers for CPO prices in the second half of 2016 and 2017 include the impact of El Nino and La Nina on palm oil supplies next year, the progress of Indonesia and Malaysia’s biodiesel mandates and the prospects of US soybean crops in second half of 2016.
CIMB Research is maintaining its average CPO price forecasts at RM2,450 per tonne for full-year 2016 and RM2,600 per tonne for 2017.
Among CIMB Research top picks, Felda Global Ventures Holdings Bhd (FGV) and IOI Corp Bhd were the companies that investors asked most during the meeting.
The research unit highlighted to investors that FGV had a lot of potential to unlock and its share price is attractive as “it trades below its book value.”
As for IOI Corp, its ongoing Roundtable on Sustainable Palm Oil (RSPO) suspension case is still pending the RSPO review.
CIMB Research, which is “neutral” on the agribusiness sector, has an “add” call on FGV and a “hold” on IOI Corp.