MARKET DEVELOPMENT
CPO to Gain From Weak Ringgit
CPO to Gain From Weak Ringgit
16/12/2015 (The Star) - Crude palm oil (CPO) prices are expected to benefit from the weak ringgit and surge above RM2,500 per tonne in the first quarter of 2016, says MIDF Research.
In a report on the plantation sector, the research house said although ringgit had appreciated slightly to the level of RM4.30 recently against the US dollar, it was still significantly weaker than last year’s level of about RM3.50.
“We believe that weak ringgit should lead to improved CPO competitiveness against other vegetable oil, especially soybean oil,” it said, adding that it had maintained a “positive” rating on the sector.
The benchmark CPO futures for third-month delivery is down RM9 from Monday’s close to RM2,465 per tonne as at 11.30am yesterday. It had reached RM2,500 per tonne last Friday.
As a result of improved demand prospect and weakened production outlook, soybean oil prices has surged 17% over the past three weeks to a recent high of 32.08 US cents per pound (or US$707 a tonne).
Over the same period, CPO prices gained only 3%, the research house noted.
“We believe the slower price appreciation of CPO is due to ample inventory for CPO at this juncture. However, the supply fundamentals are likely to change in the next three months as lagged impact from El Nino kicks in.
“Note that palm oil tree usually produces less fresh fruit bunches six to nine months after the dry spell,” MIDF said.
The research house expects CPO price to surge above RM2,500 per tonne in the first quarter of 2016 as discount shrinks to US$100 per tonne.
“We believe the current CPO-soybean oil discount of US$153 per tonne is caused by the high inventory and this should shrink to 12-months average of US$100 per tonne in the first quarter of 2016 due to reduction in stocks level.
“We expect strong depletion of stocks level for palm oil in the first quarter of 2016 due to significantly reduced supply of palm oil as the lagged impact from El Nino is expected to hit during the seasonal low production period. Hence, CPO price should appreciate towards RM2,550 per tonne,” MIDF said.
MIDF’s top picks for the plantation sector are IOI Corp Bhd and Ta Ann Holdings Bhd.
“Our top pick is IOI Corp due as the stock is due for re-rating after it regained its syariah funds on November 30, strong earnings growth of 41% year-on-year to RM338mil in the first quarter of financial year 2016 and its earnings profile has the most pure (100%) exposure to palm oil among the big-cap index-linked planters,” it said.
MIDF explained that it had removed Sime Darby from its top pick due to earnings disappointment from the company’s industrial division.
“We also like Ta Ann due to its strong earnings growth of 38% year-on-year to RM115mil in the nine months of financial year 2015 and its timber division should benefit from higher US dollar as the division’s product prices are quoted in US dollar,” it added.
In a report on the plantation sector, the research house said although ringgit had appreciated slightly to the level of RM4.30 recently against the US dollar, it was still significantly weaker than last year’s level of about RM3.50.
“We believe that weak ringgit should lead to improved CPO competitiveness against other vegetable oil, especially soybean oil,” it said, adding that it had maintained a “positive” rating on the sector.
The benchmark CPO futures for third-month delivery is down RM9 from Monday’s close to RM2,465 per tonne as at 11.30am yesterday. It had reached RM2,500 per tonne last Friday.
As a result of improved demand prospect and weakened production outlook, soybean oil prices has surged 17% over the past three weeks to a recent high of 32.08 US cents per pound (or US$707 a tonne).
Over the same period, CPO prices gained only 3%, the research house noted.
“We believe the slower price appreciation of CPO is due to ample inventory for CPO at this juncture. However, the supply fundamentals are likely to change in the next three months as lagged impact from El Nino kicks in.
“Note that palm oil tree usually produces less fresh fruit bunches six to nine months after the dry spell,” MIDF said.
The research house expects CPO price to surge above RM2,500 per tonne in the first quarter of 2016 as discount shrinks to US$100 per tonne.
“We believe the current CPO-soybean oil discount of US$153 per tonne is caused by the high inventory and this should shrink to 12-months average of US$100 per tonne in the first quarter of 2016 due to reduction in stocks level.
“We expect strong depletion of stocks level for palm oil in the first quarter of 2016 due to significantly reduced supply of palm oil as the lagged impact from El Nino is expected to hit during the seasonal low production period. Hence, CPO price should appreciate towards RM2,550 per tonne,” MIDF said.
MIDF’s top picks for the plantation sector are IOI Corp Bhd and Ta Ann Holdings Bhd.
“Our top pick is IOI Corp due as the stock is due for re-rating after it regained its syariah funds on November 30, strong earnings growth of 41% year-on-year to RM338mil in the first quarter of financial year 2016 and its earnings profile has the most pure (100%) exposure to palm oil among the big-cap index-linked planters,” it said.
MIDF explained that it had removed Sime Darby from its top pick due to earnings disappointment from the company’s industrial division.
“We also like Ta Ann due to its strong earnings growth of 38% year-on-year to RM115mil in the nine months of financial year 2015 and its timber division should benefit from higher US dollar as the division’s product prices are quoted in US dollar,” it added.