12/09/2012 (The Sun Daily) - Crude palm oil prices (CPO) will remain weak over the next two months as still-high production offset exports, said analysts, who are predicting prices to pick up in the latter part of the fourth quarter of this year.

CIMB Research said average CPO prices for the first eight months of 2012 have declined by 3.7% year-on-year to RM3,110 per tonne. The research firm is keeping unchanged its forecasts for the average CPO price for 2013 at RM3,160 per tonne, and 2014 at RM3,200 per tonne.

Palm oil stocks in Malaysia rose 6% month-on-month to a 10th-month high of 2.12 million tonnes at end-August, due mainly to higher production. This was 3% higher than CIMB's estimates and 1.5% above a Reuters poll estimate.

"The higher inventory figure is negative for CPO prices as the higher stock buffers will limit price gains in the immediate term. We project end-September stock to inch up by 5% as seasonal increases in output outweigh a pick-up in exports," said CIMB in a note to clients yesterday.

Nevertheless, CIMB remains positive on CPO prices as it believes that the rising likelihood of El Nino and the on-going US Midwest drought may keep a lid on the growth potential of supplies.

It also expects demand for palm oil to pick up in view of its favourable discount of US$327 (RM1,000) per tonne against soybean oil versus the historical average of US$120 (RM368).

"We expect the discount gap to narrow when we enter the low production season for palm in latter part of fourth-quarter (2012)," CIMB added.

HwangDBS Vickers Research Sdn Bhd is forecasting September 2012 palm oil exports to jump 24% to 1.773 million tonnes from the previous month, given the current record price discount to soybean oil.

"We expect palm oil prices to remain weak in the near term as palm oil stock/usage ratio may stay elevated relative to soybean oil until demand switch gathers pace," said HwangDBS.

Kenanga Research said the CPO price upside should be limited in the near term as it expects palm oil production to continue outpacing exports through the third quarter of this year, keeping inventory levels above 2 million tonnes.

"This month, we expect CPO production to surge 12% to 1.86 million tonnes from August 2012 in line with seasonal factors and the return of the harvesting process to its normal level.

"Typically, a strong CPO production pick-up will limit the upside for CPO prices due to the abundant supply," it added.

Kenanga also believes that a strong El Niño is unlikely in the near term because the Southern Oscillation Index (SOI) is currently at neutral levels.

"According to the Australian Bureau Of Meteorology, some of its indicators such as trade winds and tropical cloud patterns have yet to show typical El Niño signs. Hence, we think that even though there is a possibility for El Nino to return, it is likely to be a weak one," it said.

Due to a lack of strong catalysts for the sector, Kenanga is maintaining a "neutral" call on the local plantation sector and keeping its average CPO price estimates for 2012-13 unchanged at RM3,150-RM3,100 per tonne.