"CPO prices to spike on Russian move to suspend Russia-Ukraine grains corridor"
18.07.2023 (New Straits Times) - KUALA LUMPUR: Crude palm oil (CPO) prices are expected to spike in the near term as a knee-jerk reaction to Russia's move to suspend a humanitarian corridor to deliver key Ukrainian grains to global markets, hours before the agreement expires.
"We expect a knee-jerk positive reaction to global oilseed and vegetable oil prices as a result of the cancellation of the Russia-Ukraine grains corridor."We make no changes to our RM3,900 per tonne average price assumptions for now, but are in the midst of reviewing our price assumptions for 2024," RHB Research said in a note today.
It noted that it is still possible for Russia to change its mind as it did in October 2022; especially as Russia stands to lose with the cancellation of the deal.
"However, we highlight that any supply shortage would only kick in by September, while Ukraine has been relying less on the corridor of late to ship out its products," RHB Research said.
According to UkrAgroconsult, an organiser of the International conferences on grains and oilseeds, since March 2023, more crops were shipped out of the country by river ports, rail, and road than by the grain corridor as such the reliance on the corridor has lessened considerably.
RHB Research said there is time for the grain deal issue to be resolved before any real damage is done to overall oilseed and vegetable oil supply, as the next crop cycle for harvesting in Russia and Ukraine only starts in September.
It also noted that other oils and oilseeds would also spike up as sunflower seeds from Russia and Ukraine make up 45 per cent of global sunseed output.
Buyers have been stocking up on sunflower oil in recent weeks in view of this possibility, so stock levels at importing countries are high.
"We highlight that the previous outcome of the price spike post Russia-Ukraine war announcement was a hoarding of inventory resulting in weak demand for many months as importers wound down their high stock levels," RHB Research said.
The research house maintains a neutral call on the sector. Its top picks are Kuala Lumpur Kepong Bhd (BUY, TP:RM26.10), IOI Corp Bhd (BUY, TP:RM4.35), and Wilmar International Limited (BUY, TP:S$4.40).