MARKET DEVELOPMENT
Analysts Expect CPO Output, Demand To Slow Down
Analysts Expect CPO Output, Demand To Slow Down
13/11/2015 (The Sun) - Analysts expect production and demand in the plantation sector to slow down, following record high inventories of crude palm oil (CPO) stocks in October.
HLIB Research said CPO production increased by 4% month-on-month in October, against market expectation of a weaker production.
“However, production is likely to slow down going forward during the low production season and affected by the lagged impact from previous adverse weather conditions. Sabah’s production would be affected by the lagged impact from 1H15’s dry weather while Peninsular Malaysia’s production would be affected by the lagged impact from last year’s flooding in the East Coast,” it said in a report yesterday.
The research house added that despite the surprise export growth in October, it expects palm oil exports to slow down moving forward as it enters the winter season.
“The inventory level is likely to stay high for the remaining 2015 during the low demand season. High inventory level will cap CPO price movement in the near term. We expect better CPO prices in 1Q16 when inventory levels come off as demand picks up,” said HLIB.
It is maintaining its average CPO price forecasts of RM2,300 per tonne and RM2,400 per tonne for 2015 and 2016 respectively, as well as its “neutral” stance on the sector.
On slowing demand, BIMB Securities Research said palm oil export volume has increased slightly with exports inching up by 1.9% month-on-month and 6.2% year-on-year. Demand from most countries came in weaker month-on-month, particularly from China and the European Union by 13% and 2.8% respectively.
It expects export demand to improve in the coming months ahead of festivities as importers take advantage of the lower CPO price and weaker ringgit.
“With the prolonged recurrence of El Nino, we think it may lend support to the CPO price as crop production is expected to be affected in the coming months due to the lagged impact from the dry season. We maintain our CPO price assumptions at RM2,200 per tonne for 2015 and RM2,300 per tonne for 2016,” said BIMB, which also maintained its “neutral” rating on the sector.
It said fresh fruit bunch (FFB) yields have increased slightly despite the recent drought as the impact will only be felt in the next six months.
“As such, we expect lower FFB yields going forward, especially in East Malaysia due to the prolonged drought.”
PublicInvest Research believes exports are gradually losing some market share, especially in China and Pakistan, due to stiff competition from Indonesia.
“Over the short-term, we expect CPO prices to continue to stay at current levels, as inventories are likely to remain high over the next two months. Nevertheless, we continue to maintain our positive view on the plantation outlook with an unchanged CPO price forecast of RM2,500 per tonne next year as we think CPO supplies could be significantly affected by the El Nino,” PublicInvest said.
Meanwhile, Plantation Industries and Commodities Minister Datuk Amar Douglas Uggah Embas said the increase in use of palm-based bio-diesel and the launch of the RM100 million Oil Palm Replanting Scheme Incentive 2015 has been identified as measures to reduce crude palm oil stocks, Bernama reported.
Stocks as at October 2015 were 2.83 million tonnes.
HLIB Research said CPO production increased by 4% month-on-month in October, against market expectation of a weaker production.
“However, production is likely to slow down going forward during the low production season and affected by the lagged impact from previous adverse weather conditions. Sabah’s production would be affected by the lagged impact from 1H15’s dry weather while Peninsular Malaysia’s production would be affected by the lagged impact from last year’s flooding in the East Coast,” it said in a report yesterday.
The research house added that despite the surprise export growth in October, it expects palm oil exports to slow down moving forward as it enters the winter season.
“The inventory level is likely to stay high for the remaining 2015 during the low demand season. High inventory level will cap CPO price movement in the near term. We expect better CPO prices in 1Q16 when inventory levels come off as demand picks up,” said HLIB.
It is maintaining its average CPO price forecasts of RM2,300 per tonne and RM2,400 per tonne for 2015 and 2016 respectively, as well as its “neutral” stance on the sector.
On slowing demand, BIMB Securities Research said palm oil export volume has increased slightly with exports inching up by 1.9% month-on-month and 6.2% year-on-year. Demand from most countries came in weaker month-on-month, particularly from China and the European Union by 13% and 2.8% respectively.
It expects export demand to improve in the coming months ahead of festivities as importers take advantage of the lower CPO price and weaker ringgit.
“With the prolonged recurrence of El Nino, we think it may lend support to the CPO price as crop production is expected to be affected in the coming months due to the lagged impact from the dry season. We maintain our CPO price assumptions at RM2,200 per tonne for 2015 and RM2,300 per tonne for 2016,” said BIMB, which also maintained its “neutral” rating on the sector.
It said fresh fruit bunch (FFB) yields have increased slightly despite the recent drought as the impact will only be felt in the next six months.
“As such, we expect lower FFB yields going forward, especially in East Malaysia due to the prolonged drought.”
PublicInvest Research believes exports are gradually losing some market share, especially in China and Pakistan, due to stiff competition from Indonesia.
“Over the short-term, we expect CPO prices to continue to stay at current levels, as inventories are likely to remain high over the next two months. Nevertheless, we continue to maintain our positive view on the plantation outlook with an unchanged CPO price forecast of RM2,500 per tonne next year as we think CPO supplies could be significantly affected by the El Nino,” PublicInvest said.
Meanwhile, Plantation Industries and Commodities Minister Datuk Amar Douglas Uggah Embas said the increase in use of palm-based bio-diesel and the launch of the RM100 million Oil Palm Replanting Scheme Incentive 2015 has been identified as measures to reduce crude palm oil stocks, Bernama reported.
Stocks as at October 2015 were 2.83 million tonnes.