16/05/2011 (The Star) - Despite the strengthening of the ringgit against the US dollar, the current CPO price of about RM3,300 per tonne is still good for local oil palm companies.

An analyst tells StarBizWeek that although the local currency is getting stronger against the greenback, the current price is still much better than last year's average of RM2,740.

“The companies' earnings are still not affected much as they are still gaining more from the current CPO price,” he says.

Another analyst says she is still bullish that CPO price will be above RM3,000 per tonne this year, backed by higher demand from the international market.

“The strengthening of ringgit does not impact directly on the companies' earning as the demand is still high even though theoretically, the weaker US dollar means less income from exports after converting to ringgit,” she says.

However, MIDF Amanah Investment Bank Bhd in a report this week says overseas sales of CPO may be affected by the rise of the inggit rise against the US dollar amid higher output that would weaken prices

“A stronger ringgit may dampen exports to purchasers using the greenback given that the main trading exchange of CPO in Kuala Lumpur is quoted in the local currency,” the report says.

“However, the strengthening ringgit is expected to have a positive impact on the cost of production, as it will reduce cost of fertiliser quoted in US dollar that accounts for up to 40% of total production costs,” it says. “We believe that the strengthening of ringgit will provide a degree of natural hedge for the plantation companies.”

The latest data from the Malaysian Palm Oil Board shows increased output mainly from East Malaysia while exports of the edible commodity climbed during April due to higher demand from European Union countries and India.

While month-on-month prices have declined 2.7% in April with the recent sell-down, average CPO price has surged more than 39% to RM3,578 per tonne year-to-date compared with the same period a year ago.

MPOB says palm oil stocks jumped from 1.61 million tonnes in March to 1.67 million tonnes in April - the highest in six months following higher production at 1.53 million tonnes in April (March: 1.41 million tonnes).

Exports for April rose to 1.33 million tonnes - the highest in five months - from 1.24 million tonnes a month earlier.

MIDF further says CPO price is expected to stay above RM3,000 a tonne for the first half this year before weakening in the second half as production resumes with improving weather conditions.

It expects CPO price to begin weakening in second half of 2011 as the cyclical uptrend in production, coupled with normalised weather conditions, increase CPO output going forward.

Another analyst expects a “slight impact” on the earnings of companies which export CPO but not for planters who sell CPO locally.

“However players involved in exporting CPO would have hedged their selling price to offset the weakening dollar,” she says.

An analyst has been reported to say that the rally in CPO that pushed prices to near RM4,000 a tonne early this year has probably ended. Higher output and inventory, besides weaker demand, will hurt CPO prices.

She forecasts that palm oil prices will trade at an average of RM3,000 a tonne for 2011 and that another rally in the commodity in the near term is unlikely.