The Edge Markets (09/03/2018) - Plantation sector
Maintain neutral call. Public Investment Bank attended the three-day Palm and Lauric Oils Conference 2018 organised by Bursa Malaysia.

The crude palm oil (CPO) price outlooks given by industry experts were generally flat at current level after seeing a strong CPO price performance last year with the industry price forecasts ranging from RM2,200 to RM2,700 per mega-tonnes (mt), while our CPO price forecast is RM2,500 per mt.

Other than the CPO price outlook, other popular discussions include the proposal of banning palm oil as biodiesel effective 2021 and the recent import duty hike in India, which could dampen Malaysia’s efforts in pushing for more CPO sales with the temporary suspension of export duty.

At the point of writing, CPO futures slipped 1.3% to RM2,459 per mt with our only top picks for the sector being Genting Plantations and Ta Ann.

CPO price is likely to be supported by the larger Indonesian biodiesel mandate due to the narrower gap between local palm biodiesel and gasoil prices as well as a pickup in demand in the near term ahead of the Ramadan period in mid-May.

Hence, CPO price is unlikely to experience a sharp correction due to the palm oil event which saw mixed views represented by three experts: Dorab Mistry, James Fry and Thomas Mielke.

Mistry has the most bullish call as he sees CPO price could potentially touch as high as RM2,700 per mt while Fry’s view of RM2,200 per mt is the lowest. Mielke has a wide range of forecasts as he foresees in the range of RM2,350 to RM2,700 per mt.

Argentina’s soybean disruption due to severe drought could see a drastic decline in production by at least 13 million mt or 23%, resulting in a total decline of 9 million mt for the global soybean production this year.

Another drawback is the bigger biodiesel mandate that can be funded in Indonesia due to the narrower gap between the cost of local biodiesel and gasoil.

We are keeping our “neutral” outlook on the plantation sector with an unchanged average CPO price forecast of RM2,500 per mt for 2018 and we like Genting Plantations and Ta Ann for their pure plantation upstream focus, decent food and beverages production, and young age profile. — Public Investment Bank Research, March 8

Read more at http://www.theedgemarkets.com/article/pickup-palm-oil-demand-seen-ahead-ramadan-may