CPO price seen to be 20% down this year, profits may be affected
The Star Online (12/12/2018) - PETALING JAYA: Analysts have pegged the average crude palm oil (CPO) price for this year to drop by over 20% at RM2,260-RM2,280 per tonne, compared with RM2,815 per tonne recorded in 2017.
This will also drag on the full-year profit margins of local planters, who are mostly dependent on stable CPO prices.
Analysts pointed out that the dismal CPO price performance this year was mostly due to rising stockpile, higher output and weak export outlook.
The Malaysian Palm Oil Board released its latest statistics on Monday, which showed palm oil stocks hitting an all-time high of 3.01 million tonnes for end-November 2018.
According to CGSCIMB, local palm oil stocks are expected to rise to 3.07 million tonnes by end-December as higher production is expected to exceed exports.
“We do not think prices will recover significantly as we project stocks to climb further this month,” said the research unit in its latest agribusiness report.
The average CPO price fell 12% month-on-month and 32% year-on-year to RM1,831 per tonne last month. This represents the lowest monthly average CPO price achieved in 2018.
“If the CPO price stays at the current level, we estimate there could be a RM20 to RM30 per tonne downside to our CPO price forecast for 2018,” it added.
CGSCIMB, which has a “neutral” call on the sector due to lack of catalysts, is maintaining its CPO price forecasts at RM2,260 for 2018, RM2,400 for 2019 and RM2,500 per tonne for 2020 respectively.
The research unit also expected the CPO spot prices to trade at RM1,700 to RM2,000 per tonne for this month.
The current CPO spot price is trading at RM1,740 per tonne.
In the coming months, the key events to watch out for are the El Nino development, the execution of biodiesel mandate in Indonesia, import tariffs in India for palm oil and changes in the export levy.
Maybank Kim Eng, meanwhile, said the high palm oil stocks were reflected by the current low CPO spot price, which is trading below RM2,000 per tonne.
“The CPO price may have bottomed if stockpile has peaked for the year. One positive factor is that the output has peaked in October and came off sharply in November.
“We will maintain our view that a seasonal price recovery can be expected in the first quarter of 2019 as the industry enters a low output period,” it said in its regional plantation report.
It added that Indonesia held the key in supporting CPO price as the government has pledged to boost the usage of palm biodiesel with its B20 mandate going full-steam.
Exports in December bore close monitoring following Indonesia’s new decree effective Dec 4, 2018 to exempt its palm oil export levy when CPO price is US$570 per tonne “to create a more level playing field for Malaysian exporters and deemed positive in lowering Malaysia’s high stockpile.”
Maybank Kim Eng noted the wide price discounts of palm oil against other oilseeds such as Argentina soyoil, the European Union rapeseed oil and gas oil (i.e. diesel) would also work to limit CPO price downside.