MARKET DEVELOPMENT
CPO Prices May Not Be Pressured By Higher Palm Oil Production
CPO Prices May Not Be Pressured By Higher Palm Oil Production
12/04/2014 (Bernama) - Crude palm oil (CPO) prices may not face pressure due to higher palm oil production, while any downside should be limited and weak exports, temporary, said Kenanga Research.
The research house said in its view, the extra supply would be absorbed by Indonesia's biodiesel mandate, while the weak exports situation is temporary as the bumper soybean harvest from South America should only last until end-May.
"Malaysia's palm oil stocks level of 1.69 million metric tonnes in March 2014 came in six per cent higher than the consensus estimate of 1.60 million metric tonnes as production unexpectedly surged 17 per cent month-on-month," the research house said in a note.
It added that it believes oil palm trees may have started their production uptrend cycle after a 10-month hiatus.
"Overall we maintain our positive view on CPO prices in the mid to long term due to sustainable demand seen from the Indonesian biodiesel industry and stable food demand," it added.
Meanwhile, RHB Research expressed optimism that the increase in Malaysia's palm oil inventory would not be sustainable.
"We believe that the higher March production, which benefited from a spillover from February, will not be repeated in April. Exports should pick up again due to a pullback in palm oil prices and a wider discount of soybean oil," it said.
Its outlook on the sector remained very bullish as sector valuation is still undemanding, while palm oil prices should strengthen further in the second and third quarters of 2014, as adverse impact on production from the dry weather last year becomes evident.
The research house said in its view, the extra supply would be absorbed by Indonesia's biodiesel mandate, while the weak exports situation is temporary as the bumper soybean harvest from South America should only last until end-May.
"Malaysia's palm oil stocks level of 1.69 million metric tonnes in March 2014 came in six per cent higher than the consensus estimate of 1.60 million metric tonnes as production unexpectedly surged 17 per cent month-on-month," the research house said in a note.
It added that it believes oil palm trees may have started their production uptrend cycle after a 10-month hiatus.
"Overall we maintain our positive view on CPO prices in the mid to long term due to sustainable demand seen from the Indonesian biodiesel industry and stable food demand," it added.
Meanwhile, RHB Research expressed optimism that the increase in Malaysia's palm oil inventory would not be sustainable.
"We believe that the higher March production, which benefited from a spillover from February, will not be repeated in April. Exports should pick up again due to a pullback in palm oil prices and a wider discount of soybean oil," it said.
Its outlook on the sector remained very bullish as sector valuation is still undemanding, while palm oil prices should strengthen further in the second and third quarters of 2014, as adverse impact on production from the dry weather last year becomes evident.