CPO export tax suspension eases pressure on stockpile
14.02.2018 (The Star Online) - PETALING JAYA: Malaysia’s high palm oil stockpile level has finally come off from its recent record, thanks to the Government’s temporary suspension on crude palm oil (CPO) export taxes effective Jan 8 which boosted exports, say analysts.
End-January 2018 palm oil stocks declined for the first time in seven months to 2.55 million tonnes, while exports rose to 1.51 million tonnes on higher demand from India and Pakistan.
According to Maybank Investment Bank (Maybank IB), the current retracement in local palm oil stockpile may continue in February and March if “strong exports could be sustained”.
It also anticipated exports to be further aided by the still-wide CPO price discounts to Argentina soyoil (US$201 per tonne) and rapeseed oil (US$317 per tonne) as at Feb 9.
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“These factors have lifted palm oil’s price competitiveness as it surpassed historical averages.
“Furthermore, the recent strength in crude oil price has kept the palm oil-gas oil (POGO) spread at relatively low levels as at Feb 9 (US$98 per tonne),” said Maybank IB in its latest report.
It noted that the narrowed spread would help Indonesia’s CPO Fund subsidise a larger amount of palm biodiesel blend compared with a year ago when the POGO spread averaged US$345 per tonne in January 2017.
Overall, this implied limited CPO price downside in the near term, said Maybank IB.
Hence, the research unit is maintaining its CPO average selling price forecast at RM2,600 per tonne for 2018, with strong CPO price anticipated in the first half of this year compared to the second half of this year.
Maybank IB is maintaining a “neutral” call on the plantation sector, with selected buys namely IOI Corp Bhd
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Meanwhile, MIDF Research is among the few brokerages which has a positive view on the plantation sector due to improved demand outlook for palm oil this year. It is also maintaining a CPO price forecast of RM2,900 per tonne for 2018.
“We believe that the good economic growth in 2018 should lead to higher consumption per capita.
“On the supply side, consensus estimate of huge supply growth may not be fully realised due to ongoing labor shortage and the high replanting activity in Indonesia,” it said in a report.
This year, Indonesia plans to replant up to 165,000ha of oil palm plantation land that could result in supply to decline by 500,000 tonnes, assuming oil yield of 3 tonnes per ha.
MIDF’s top pick is IOI Corp, given the overall margin improvement at the group level after the sale of a 70% stake in Loders Croklaan, a special dividend of 13 sen and net gearing which is expected to decline significantly to 0.25 times from 0.78 times previously.
Its other “buy” calls include Kuala Lumpur Kepong Bhd
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and Fima Corp Bhd
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Hong Leong Investment Bank (HLIB), on the other hand, said: “Despite the recent move to suspend CPO export taxes and low production cycle, we believe it is unlikely for stockpile to fall much lower from the current level.
“This is given the narrow price spread between CPO and soybean oil, and potentially weaker demand from China due to restocking activities in previous months ahead of the Chinese New Year celebration.”
The research unit is maintaining its average CPO price assumption of RM2,500 per tonne for 2018-2019.
HLIB is neutral on the sector due to the lack of strong demand catalyst for palm oil.
“While La Nina and the Government’s recent move to suspend CPO export taxes will lend support to near-term CPO prices, these are just short-term catalysts,” it added.