MARKET DEVELOPMENT
CPO price to ease as output rises
CPO price to ease as output rises
13.06.2022 (www.nst.com.my) - KUALA LUMPUR: Palm oil prices are expected to ease on seasonally high reproduction in the second half of the year (2H 2022), Kenanga Research said.
The firm said Malaysia's palm oil flattish output in May was largely within expectations but exports came in much stronger than anticipated at seven per cent, above the market and 15 per cent above its forecast as Indonesia banned palm oil exports from April 28 till May 23.
"Looking ahead, we expect monthly production to inch up till the months of September and October," it said in a note.
The Indonesian export ban created uncertainties and caused some disruptions but the overall impact on supply may be more contained as it lasted for under a month.
Kenanga Research also noted that while inventory dropped in Malaysia, it rose in Indonesia, thus the aggregated effect was smaller.
However, prices are likely to still stay firm on the back of the following factors such as supply of edible oils across the world is still tight.
"Although soybean supply should improve in the coming 2H from United States planting along with seasonally higher palm output, the overall edible oil supply is still stretched.
"Meaningful supply recovery is more likely to take place in 2023, hence edible oil prices should stay firm still," it said.
Covid-19 has also dampened demand since 2020.
"In spite of the lockdowns, interruptions to social and economic activities as well as supply chain disruptions, global usage of edible oils did not contract during 2020 and 2021 but kept growing
However, the increment was small with the growth estimated inching up by less than one per cent each year over 2020-2021, well below the usual three to four per cent annual growth in consumption.
As such, demand for edible oils should firm up as the world transitions to a post Covid19 normal even if economic growth was slow, said Kenanga Research.
It also noted the resiliency in demand is because the bulk of edible oils is consumed as food.
"The risk of supply destruction for palm oil is also growing due to the labour shortage in Malaysia.
"With peak harvesting months coming within sight, fresh batches of guest workers have yet to arrive.
"If this delay persists, some fruit may be left unharvested resulting in lower-than-expected supply for palm oil," it said.
Kenanga Research estimates June output to be around 1.519 million metric tonne, with supply due to improve seasonally, prices should ease.
Malaysia should also see slower exports in June and higher month-end inventories following Indonesia's decision to lift its export ban on May 23.
The firm gave a "neutral" call on the sector, acknowledging some lingering environmental, social and governance concerns and also its preference to stay selective.
https://www.nst.com.my/business/2022/06/804416/cpo-price-ease-output-rises