14/02/2012 (The Star) - Crude palm oil (CPO) prices are expected to be weaker in the second half of the year, according to research analysts.

HwangDBS Vickers Research said this would be due mainly to lingering inventories since the end of last year.

“Even if CPO production grew by a single percentage point and imports were cut, inventory would still surge if exports do not recover in the third quarter,” said the research unit in a report.

Meanwhile, Kenanga Research expects CPO prices to range-bound between RM3,000 and RM3,200 per tonne in the first half of the year.

“The second half of 2012 should see higher CPO production, and prices would be weaker,” said Kenanga Research, which maintains its average CPO price assumption of RM3,000 per tonne for this year, a drop of 8% year-on-year.

Hong Leong Investment Bank's (HLIB) research unit said CPO prices in the second half should be weakened mainly due to two factors.

“The La Nina weather phenomenon is expected to subside by the end of the first half, which would result in higher palm oil production.

“Also, the eurozone's sovereign debt crisis, which is expected to remain long drawn over the medium term, may affect demand for vegetable oils including palm oil.”

RHB Research Institute also said CPO prices in the second half would be affected by a potential improvement in the soybean crop outlook for this year and next.

However, it said global dependence on CPO was likely to increase, particularly in the first half, as this year would be the first season where soybean production was expected to decline in both the United States and South America, thus resulting in a substantial global soybean crop shortfall of 17 million tonnes, or 6.5% of annual consumption.

The Malaysian Palm Oil Board's statistics for January showed lower palm oil stocks and production.

Stocks fell 2.5% to 2.01 million tonnes from 2.06 million, while production eased by 13.9% to 1.29 million tonnes from 1.50 million previously.

OSK Research said January was the fifth consecutive month where palm oil inventory had remained above the two million tonnes mark. “This is the longest period that inventory has ever held above this mark, with the previous record at only two months.”

However, OSK Research said inventory should drop below two million tonnes by end-February, with weaker month-on-month production likely for the next few months.