MARKET DEVELOPMENT
Affin Research Maintains Neutral on Plantations
Affin Research Maintains Neutral on Plantations
12/04/2014 (The Star) - Affin Research has maintained its Neutral call on the plantations sector with its 2014-2016 crude palm oil (CPO) average selling price (ASP) at RM2,700MT.
In a note on Friday, Affin said the sector rating was based on lower-than-expected soybean and palm oil production due to extreme weather conditions, stronger-than-expected recovery in the global economy boosting vegetable and crude oil prices and changes in policies cutting oil palm plantation development in Indonesia or spurring biodiesel usage in more markets.
“Record March production, FFB yields higher in all three regions,” it said.
After declining over the last four months since the recent production peak of 1.97 million metric tonnes in October, 2013, CPO production in March 2014 surged to 1.50mil MT – the highest ever in the month of March.
Sentiment seem to have turned bearish in the futures market Sentiment on Bursa Malaysia Derivatives seem to have turned bearish, with the 3-M CPO futures dipping to as low as RM2,576/MT earlier this week, even though the MPOB locally delivered price remained above RM2,650/MT.
“The strength of the upturn in FFB yields and CPO production in April and the following months as well as recovery in exports ahead of Ramadhan in June/July will have a strong bearing on prices.
Prospects for increased domestic usage for biodiesel production in Malaysia and Indonesia will continue to underpin prices, which may also surge if forecasts of an El Niño event in 2H2014 materialises,” it said.
It added the biodiesel driver will be further strengthened if the US Congress approves the reintroduction of the US$1 per gallon biodiesel credit for 2014 (retroactively) and 2015 recommended by the Senate Finance Committee.
“The soybean oil premium over CPO has also widened to US$130/MT. Prospects of another record US soybean planting in 2014 when South American stocks are high is however a key downside risk to sentiment and prices in the coming months,” it said.
In a note on Friday, Affin said the sector rating was based on lower-than-expected soybean and palm oil production due to extreme weather conditions, stronger-than-expected recovery in the global economy boosting vegetable and crude oil prices and changes in policies cutting oil palm plantation development in Indonesia or spurring biodiesel usage in more markets.
“Record March production, FFB yields higher in all three regions,” it said.
After declining over the last four months since the recent production peak of 1.97 million metric tonnes in October, 2013, CPO production in March 2014 surged to 1.50mil MT – the highest ever in the month of March.
Sentiment seem to have turned bearish in the futures market Sentiment on Bursa Malaysia Derivatives seem to have turned bearish, with the 3-M CPO futures dipping to as low as RM2,576/MT earlier this week, even though the MPOB locally delivered price remained above RM2,650/MT.
“The strength of the upturn in FFB yields and CPO production in April and the following months as well as recovery in exports ahead of Ramadhan in June/July will have a strong bearing on prices.
Prospects for increased domestic usage for biodiesel production in Malaysia and Indonesia will continue to underpin prices, which may also surge if forecasts of an El Niño event in 2H2014 materialises,” it said.
It added the biodiesel driver will be further strengthened if the US Congress approves the reintroduction of the US$1 per gallon biodiesel credit for 2014 (retroactively) and 2015 recommended by the Senate Finance Committee.
“The soybean oil premium over CPO has also widened to US$130/MT. Prospects of another record US soybean planting in 2014 when South American stocks are high is however a key downside risk to sentiment and prices in the coming months,” it said.