MARKET DEVELOPMENT
Sheen For Palm Oil Ahead As CPO Hope To Rise
Sheen For Palm Oil Ahead As CPO Hope To Rise
28/12/2015 (Borneo Post) - Researchers at MIDF Amanah Investment Bank Bhd (MIDF Research) expect crude palm oil prices (CPO) to surge above RM2,500 per metric tonne (MT) in the first quarter of 2016 as inventory drops below 2.5 million MT.
“We expect strong depletion of stocks level for palm oil in the 1QCY2016 due to significantly reduced supply of palm oil,” it said in its annual outlook report. “Timing wise, 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 MT in 1Q16 assuming current soybean oil price of US$700 per MT stays. In our view, CPO discount against soybean oil should shrink to US$100 per MT due to reduction in stocks level.”
MIDF Research also expects CPO price to benefit from the weak ringgit.
“Although the ringgit has appreciated slightly to the level of 4.20 to 4.30 recently (from 4.40 to 4.50), it is still significantly lower than last year level of 3.50. We believe that weak ringgit should lead to improved CPO competitiveness against other vegetable oil, especially soybean oil.”
In other observations, AllianceDBS Research Sdn Bhd (AllianceDBS Research) said in light of the lagged impact of dry weather seen in Sabah and Johor this year, Malaysia’s palm oil output is expected to ease between zero to four per cent next year.
Much of the drop, it said, is expected to occur during the seasonally low 1Q16.
“With most of Indonesian oil palm-growing provinces receiving far less than 100mm for more than three consecutive months in the second half of 2015, we anticipate a more pronounced impact to palm oil supply there (partly offset by large new maturities),” it detailled in separate outlook report.
Lower output and a ramp-up in biodiesel blending through Apr-16 should therefore normalise global palm oil stockpile fairly quickly from current record levels. it said.
“We believe the market has mostly priced in prospective El Nino and B15/B20 impacts (as evident in the wide divergence between futures and spot prices).
“But continued strength in CPO prices remains subject to notable uncertainties, namely the potential release of Argentine old-crop soybean inventories, size of South American soybean crop, US biodiesel demand, crude oil prices, and US dollar strength.
“There remains a possibility that severe dry weather and forest fires would return in 1Q16 – as was the case in the previous strong CY97/98 El Nino occurrence.”
AllianceDBS Research said Malaysian planters with significant presence in Indonesia would continue to see the impact of B15/B20 export levies.
“We also expect weaker CY16 FFB yields of planters with large estates in Sabah – which would weigh on earnings.
“As positive CY16 earnings drivers are increasingly reliant on exogenous factors (i.e. Indonesia’sbiodiesel implementation, crude oil prices); we believe any exposure in this sector should be based on strong balance sheet and strong pipeline of maturing estates.”
“We expect strong depletion of stocks level for palm oil in the 1QCY2016 due to significantly reduced supply of palm oil,” it said in its annual outlook report. “Timing wise, 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 MT in 1Q16 assuming current soybean oil price of US$700 per MT stays. In our view, CPO discount against soybean oil should shrink to US$100 per MT due to reduction in stocks level.”
MIDF Research also expects CPO price to benefit from the weak ringgit.
“Although the ringgit has appreciated slightly to the level of 4.20 to 4.30 recently (from 4.40 to 4.50), it is still significantly lower than last year level of 3.50. We believe that weak ringgit should lead to improved CPO competitiveness against other vegetable oil, especially soybean oil.”
In other observations, AllianceDBS Research Sdn Bhd (AllianceDBS Research) said in light of the lagged impact of dry weather seen in Sabah and Johor this year, Malaysia’s palm oil output is expected to ease between zero to four per cent next year.
Much of the drop, it said, is expected to occur during the seasonally low 1Q16.
“With most of Indonesian oil palm-growing provinces receiving far less than 100mm for more than three consecutive months in the second half of 2015, we anticipate a more pronounced impact to palm oil supply there (partly offset by large new maturities),” it detailled in separate outlook report.
Lower output and a ramp-up in biodiesel blending through Apr-16 should therefore normalise global palm oil stockpile fairly quickly from current record levels. it said.
“We believe the market has mostly priced in prospective El Nino and B15/B20 impacts (as evident in the wide divergence between futures and spot prices).
“But continued strength in CPO prices remains subject to notable uncertainties, namely the potential release of Argentine old-crop soybean inventories, size of South American soybean crop, US biodiesel demand, crude oil prices, and US dollar strength.
“There remains a possibility that severe dry weather and forest fires would return in 1Q16 – as was the case in the previous strong CY97/98 El Nino occurrence.”
AllianceDBS Research said Malaysian planters with significant presence in Indonesia would continue to see the impact of B15/B20 export levies.
“We also expect weaker CY16 FFB yields of planters with large estates in Sabah – which would weigh on earnings.
“As positive CY16 earnings drivers are increasingly reliant on exogenous factors (i.e. Indonesia’sbiodiesel implementation, crude oil prices); we believe any exposure in this sector should be based on strong balance sheet and strong pipeline of maturing estates.”