MARKET DEVELOPMENT
Analysts Maintain Neutral on Plantation Sector
Analysts Maintain Neutral on Plantation Sector
11/10/2017 (New Straits Times) - Analysts have maintained their neutral stand on plantation sector after the Malaysian Palm Oil Board (MPOB) announced that Malaysia's total palm oil stocks in September 2017 rose by 3.98 per cent to 2.01 million tonnes.
PublicInvest Research in a report today said in line with its earlier forecasts, crude palm oil (CPO) inventory level surpassed two million psychological level in September.
It said inventories is expected to continue creeping up in the upcoming months, led by stronger CPO production.
“The twin effects of increasing inventories coupled with weakening of US dollar index will likely to exacerbate the downward pressure on CPO prices.
“Thus, we maintain our negative outlook on CPO prices in the near-term and expect CPO prices to fall below RM2,500 per tonne over the next couple of months,” it said.
PublicInvest said the only wild card that could provide support to CPO prices is the export demand, which has registered steady growth over the last three months.
It said it has a “neutral” outlook on the sector with preferred exposures on Genting Plantations Bhd, Sime Darby Bhd and Ta Ann Holdings Bhd.
Hong Leong Investment Bank (HLIB) Research in a separate note said it maintained its average CPO price assumptions of RM2,700 per tonne for 2017 and RM2,500 per tonne for 2018.
It said it maintained its “neutral” stance on the sector, as the strength in CPO prices will unlikely sustain into 2018, due to the absence of apparent demand growth catalyst and supply concerns.
HLIB top picks for the sector are Sime Darby and United Malacca Bhd.
MIDF Research in its note said Malaysia palm oil inventory level of 2.02 million tonne as of end-September 2017 is close to market expectation of two million tonne.
However, it said it is lower than MIDF’s estimate of 2.08 million tonne as production came in weaker than expected.
Overall, MIDF said it is “neutral” on the latest MPOB stats as it falls within market expectation.
It said the good export numbers for the first ten days of October, which grew 18 per cent month-on-month based on cargo surveyors data, should be supportive to palm oil prices.
“Our neutral view on the sector is maintained with average CPO price of RM2,725 per tonne for both 2017 and 2018.
“We believe that there is little downside risk to our estimate as year to date CPO price is RM2,850 per tonne and we expect CPO price to trade at between RM2,700 to RM2,950 per tonne throughout the fourth quarter of 2017.
“The floor of RM2,700 per tonne is due to our assumption that soybean oil should stay strong at 33 US cents per pound, or US$ 725 per tonne.
“For the ceiling of RM2,950 per tonne, we believe that most palm oil producers will sell forward in a significant way when price gets closer to RM3,000 per tonne and hence the upside is limited at RM2,950 per tonne,” it said.
PublicInvest Research in a report today said in line with its earlier forecasts, crude palm oil (CPO) inventory level surpassed two million psychological level in September.
It said inventories is expected to continue creeping up in the upcoming months, led by stronger CPO production.
“The twin effects of increasing inventories coupled with weakening of US dollar index will likely to exacerbate the downward pressure on CPO prices.
“Thus, we maintain our negative outlook on CPO prices in the near-term and expect CPO prices to fall below RM2,500 per tonne over the next couple of months,” it said.
PublicInvest said the only wild card that could provide support to CPO prices is the export demand, which has registered steady growth over the last three months.
It said it has a “neutral” outlook on the sector with preferred exposures on Genting Plantations Bhd, Sime Darby Bhd and Ta Ann Holdings Bhd.
Hong Leong Investment Bank (HLIB) Research in a separate note said it maintained its average CPO price assumptions of RM2,700 per tonne for 2017 and RM2,500 per tonne for 2018.
It said it maintained its “neutral” stance on the sector, as the strength in CPO prices will unlikely sustain into 2018, due to the absence of apparent demand growth catalyst and supply concerns.
HLIB top picks for the sector are Sime Darby and United Malacca Bhd.
MIDF Research in its note said Malaysia palm oil inventory level of 2.02 million tonne as of end-September 2017 is close to market expectation of two million tonne.
However, it said it is lower than MIDF’s estimate of 2.08 million tonne as production came in weaker than expected.
Overall, MIDF said it is “neutral” on the latest MPOB stats as it falls within market expectation.
It said the good export numbers for the first ten days of October, which grew 18 per cent month-on-month based on cargo surveyors data, should be supportive to palm oil prices.
“Our neutral view on the sector is maintained with average CPO price of RM2,725 per tonne for both 2017 and 2018.
“We believe that there is little downside risk to our estimate as year to date CPO price is RM2,850 per tonne and we expect CPO price to trade at between RM2,700 to RM2,950 per tonne throughout the fourth quarter of 2017.
“The floor of RM2,700 per tonne is due to our assumption that soybean oil should stay strong at 33 US cents per pound, or US$ 725 per tonne.
“For the ceiling of RM2,950 per tonne, we believe that most palm oil producers will sell forward in a significant way when price gets closer to RM3,000 per tonne and hence the upside is limited at RM2,950 per tonne,” it said.