23/06/2017 (The Star Online) - PETALING JAYA: Looming bearish fundamentals will likely drag crude palm oil (CPO) prices lower for the rest of this year and going into 2018, say analysts.

The CPO price has dropped by over 22% so far this year on market expectations that local production will jump by 12.6% to 15.5%, pushing production up to 19.5 million to 20 million tonnes this year reflecting strong post El-Nino recovery.

Another price indicator, the palm oil stockpile, is also expected to increase to 2.1 million to 2.3 million tonnes by end-2017 from 1.67 million tonnes recorded at end-2016.

Yesterday, the third-month benchmark CPO futures for September ended at RM2,477 per tonne.

According to UOBKayHian, palm oil production could make a greater-than-expected recovery this year but demand will not be able to to absorb the additional supply amid strong competition from the record soybean supplies.

“Supply will outweigh demand,” said the research unit in its latest regional plantation report.

Demand growth would mainly be driven by small increases in imports from China and India while Indonesia’s biodiesel demand is likely to be marginally lower than or similar to 2016’s level.

In addition, strong soybean production from the US and South America resulting in higher stock levels at almost 100 million tonnes by end 2016-2017 season will likely kept a lid on soybean prices, which in turn is capping CPO prices.

For 2017, UOBKayHian is still maintaining CPO price forecast at RM2,600 per tonne this year as “CPO prices could fall as low as RM2,200 per tonne when production picks up in second half 2017.”

However, it will trim its 2018 CPO price forecast to RM2,400 per tonne from RM2,500 previously given strong pick-up in production, lacklustre demand and ample global supply of soybean.

The research unit has a “sell” call on Genting Plantations Bhd, IJM Plantations Bhd, IOI Corp Bhd, Sime Darby Bhd, Sarawak Oil Palms Bhd and TH Plantations Bhd.