The Star Online (14/04/2020) - PETALING JAYA: Analysts expect crude palm oil (CPO) prices to average between RM2,200 and RM2,450 per tonne this year as supply will likely exceed demand given the Covid-19 led disruptions affecting major export markets.

CPO price has slumped by almost 26% year-to-date with the benchmark CPO futures contract trading at RM2,247 per tonne currently.

Alliance DBS said in its latest report that local palm oil exports are in need of a boost.

The export demand growth especially from top edible oil importers China and India will be the key development to monitor in the coming months, said the research unit.

“This could underline the resilience of CPO demand in the face of the Covid-19 pandemic and keeping the local stockpile stable, ” it added.

The latest palm oil statistics for March released by the Malaysian Palm Oil Board last Friday indicated that palm oil stockpile has gained 1.7% month-on-month (m-o-m) to 1.72 million tonnes, up for the first time since last September 2019.

Exports in March also rose 9% m-o-m to 1.1 million tonnes led by the European Union and Pakistan, but export recovery in other markets are still needed to keep the stockpile tight to help support CPO prices.

Alliance DBS pointed out that the production factor could also play a role in boosting prices.

“We assume that the movement control order (MCO) in Malaysia, especially the Sabah region, will not have any impact on its CPO output, ” it added.

The research unit noted that the supply-demand situation is still better than in 2019.

“While we are closely tracking the Covid-19 situation and Indonesia’s biodiesel programme, we expect CPO prices to stay within our forecast of RM2,450 per tonne.

“Though there were supply-driven price pressures in the first half of 2019, we foresee low single-digit year-on-year output growth for estates in Indonesia and Malaysia this year, ” it said.

Alliance DBS meanwhile said: “Plantation stocks have yet to fully recover from the recent bout of Covid-19-induced panic selling.

“While these counters remain cheap, we prefer to stick to our picks.”

The research unit added that planters with good underlying plantation assets as measured by their CPO yield per hectare and margin metrics can better withstand CPO price fluctuations, moving ahead.

Hence, it has upgraded Sime Darby Plantation Bhd to a “buy”, joining the trio of FGV Holdings Bhd, KLK and TSH RESOURCES BHD.

UOB Kay Hian (UOBKH) in its report noted that the Covid-19 outbreak will have an impact on the plantation sector namely in production, potential labour shortage and higher cost of production.

Despite Sabah’s CPO production being the most heavily impacted region, the research house foresaw some of the estates in Sarawak and Johor being affected with Covid-19 cases.

In terms of labour shortage, UOBKH sees some risks as some of the Indonesian migrant workers have returned home after the news of operational halts was announced on March 16. “They may only be back after Hari Raya or end-May. We also expect the control on incoming workers may remain strict even after the MCO is lifted, ” it added.

UOBKH noted that this ultimately will be another challenge to Malaysia-based plantation companies during the usual harvesting rounds.

“We could see more crop losses and low quality CPO due to delayed harvesting, ” it added.

Read more at https://www.thestar.com.my/business/business-news/2020/04/14/cpo-expected-to-trade-at-rm2200-rm2450