CPO prices toppish as inventory levels rise
13.04.2021 (www.thestar.com.my) - KUALA LUMPUR: Crude palm oil prices could have peaked as further upsides in crude palm oil (CPO) prices is expected to be capped by increases in inventory levels, says Kenanga Research.
On the back of March inventory levels that outpaced expectations, the research house predicts further production growth in April as all regions continue their growth trajectory and exports to rise ahead of the Islamic festive season and potential stockpiling activities from China and India.
"All in, we expect total supply to outstrip total demand leading to higher ending stocks of 1.53m MT (+5.5% MoM)," it said.
Kenanga, which is keeping "neutral" on the sector with an unchanged 2021 CPO price forecast of RM3,000/metric tonne, says the March data is bearish for prices.
"We continue to believe the peak has occurred (if not, soon).
"However, valuations of planters under our coverage and the KLPLN index (both at -1.0SD from mean) seem to have somewhat priced in the negatives," it said.
The research house's upstream preferred stick pick is HS Plantation ('outpeform', TP:RM2.15) to capitalise on the current strong CPO prices and is yet able to soften the impact of subsequent price decline due to output growth.
Its integrated pick with defensive overall margin against the CPO price variability is Kuala Lumpur Kepong ('outperform', RM25.40).