The Star Online (11/02/2020) - KUALA LUMPUR: CGS-CIMB Equities Research expects crude palm oil (CPO) prices to trade in the range of RM2,500 to RM2,800 per tonne in February and at an average of RM2,300 per tonne for 2020.

It said on Tuesday the expectation that CPO supply is likely to stay low in 1Q due to low fertiliser input a year back and falling stocks are likely to be supportive of CPO price.

“Our top picks in Malaysia are Genting Plantations, Hap Seng Plantations and KL Kepong, and regional picks are Wilmar and First Resources, ” it said.

Malaysia’s palm oil stocks fell by 13% on-month and 42% on-year to a 31-month low of 1.76 million tonnes at end-January.

This was 5% above CGS-CIMB Research’s projection of 1.67m tonnes but broadly in line with both Reuters’ and Bloomberg’s forecasts of 1.76m tonnes and 1.78m tonnes, respectively.

“The higher-than-expected stockpile (vs. our forecast) was mainly due to higher-than-expected production and lower-than-expected exports, ” it said.

CPO production fell by 13% on-month to 1.17m tonnes in Jan 20 due to seasonal factors. However, we note that the 33% on-year fall in output was the sharpest decline ever registered based on its tracking of MPOB data since 1983, due partly to the high production base registered in January 2019.

This could also be due to lower fertilisers applied by farmers a year ago and dry weather experienced in part of the region. January CPO production accounted for only 6% of its CPO production estimate of 19.63m tonnes (-1.2% on-year) for 2020.

Palm oil exports fell by 13% on-month and 28% on-year to 1.2m tonnes in January 20, mostly due to lower demand from China (-31% on-month) and India (-66% on-month).

The weaker exports to India could be due to restrictions imposed on refined palm oil. The lower exports are partly due to a rationing of demand, following the sharp rise in CPO prices on concerns of weak supply.

“We project palm oil stocks to fall by 5% on-month to 1.66m tonnes at end-Feb 20F as consumption and exports are projected to trump production and imports.

“We expect Feb palm oil output and exports to fall by 5% on-month and 18% on-month, respectively.

“According to cargo surveyors Intertek Testing Services (ITS), Amspec Malaysia and Societe Generale de Surveillance (SGS), Malaysia's palm oil exports in the first 10 days of Feb 20 were -20% and -29.3% compared with the first 10 days of Jan 20, ” CGS-CIMB Research said.

Read more at https://www.thestar.com.my/business/business-news/2020/02/11/cgs-cimb-research-sees-cpo-trading-rm2500-to-rm2800