01.01.2020 (The Star Online) - PETALING JAYA: Crude palm oil (CPO) prices ended the year 2019 on a high note, with third-month CPO futures closing at RM3,046 per tonne.

Prices had finally breached the RM3,000-per-tonne mark last week after languishing at relatively low levels during the first half of the year.

The last time CPO prices had breached the RM3,000 mark was back in February 2017.

CPO prices, which had started the year 2019 at RM2,121 per tonne, had sank further to hit a low of RM1,937 per tonne by July 10,2019.

This, however, was followed by a rally in prices, resulting in a stunning recovery over the next six months, and marking a 47% jump in CPO prices over the 12-month period.

The rally is reportedly driven by fears of a supply crunch, owing to lower output growth and rising biodiesel mandates.

The rising prices had also resulted in plantation companies having to pay the palm oil windfall profit tax, as well as the 5% tax imposed on CPO exports for the month of January 2020.

A report by Fitch Ratings, meanwhile, noted that the average Malaysian benchmark CPO prices of around US$510 per tonne (RM2,087) is lower than the average US$555 per tonne recorded in 2018.

According to the Malaysian Palm Oil Council, the average CPO price in Peninsular Malaysia in 2018 was RM2,235 per tonne, as compared to RM2,783 in 2017.

Fitch Ratings said it expected prices to average at US$550 (RM2,251) per tonne in 2020.

“Strong prices could continue into early 2020 but we expect a moderation later in the year due to higher supply, driven by better weather conditions and fertiliser input, ” it said.

AmInvestment Bank Research, meanwhile, has an average CPO price assumption of RM2,300 per tonne in 2020, as well as an average spot price forecast of RM2,100 per tonne.

The research house, in its 2020 market outlook report, said it was “neutral” on the sector as it believed that the price-earnings valuations had already priced in the improvement in CPO prices.

“We reckon that there is limited upside to CPO price and CPO prices are ‘toppish’.

“As such, we think that CPO prices are priced to perfection and have already reflected the bullish factors, ” it said in the report.

It added that this was an opportune time to take profit on some plantation stocks.

The research house has “sell” calls on Sime Darby Plantation, FGV Holdings and TH Plantations.

It noted that its average CPO price assumption of RM2,300 per tonne implied a trading range of RM2,100 to RM2,500 per tonne in 2020.