RHB Research: CPO prices to range RM3,000-RM3,500 per tonne on rising costs, demand
12/08/2024 (New Straits Times), Kuala Lumpur - RHB Investment Bank Bhd (RHB Research) forecasts that long-term crude palm oil (CPO) prices will range between RM3,000 and RM3,500 per tonne, driven by increasing costs and rising demand.
The firm also mentioned that, given the current rising cost environment, it may no longer be realistic to anticipate CPO trading at a discount compared to other oils in the medium term.
"Global reliance on CPO will remain high, as CPO is the most efficient vegetable oil in the world, and supply is tightening in view of rising biofuel mandates and climate change effects.
"As such, we believe CPO prices would need to stay at higher levels to meet rising costs and increasing demand," it said.
RHB Research noted that, given these challenging conditions, plantation companies must innovate to cut costs and boost profitability.
This could involve enhancing efficiency, increasing mechanisation and automation, advancing research and development (R&D) to develop superior seedlings, improving environmental, social and governance (ESG) ratings to secure premium pricing, or diversifying income by leveraging their main asset, namely their landbank.
"Besides expanding further downstream and converting/selling suitable agricultural land into property development land, planters have been looking for new and innovative ways to use the assets they already have, i.e., land and palm oil waste.
"Many companies are now using palm oil waste to produce energy, fuel substitutes, fertiliser, animal feed, mulch, pulp and paper, wood, etc.," it said.
However, RHB Research stated that most of these initiatives will have only a minimal impact on profitability per hectare.
"As such, planters are now moving further away from the main palm oil business by taking advantage of the sizable landbank they own—putting the less productive and older tree areas to better use.
"One such initiative is to join the renewable energy (RE) fray by moving further into solar farms, either by renting out land to solar farms or by participating in operating solar farms themselves," it added.
In Malaysia, areas identified as suitable for solar farming under the Malaysia Renewable Energy Roadmap are primarily in West Malaysia and Sabah, though Sabah is less favourable due to interconnection challenges.
RHB Research stated that SD Guthrie Bhd has already unveiled significant plans to engage in solar farming initiatives. Other companies with potentially suitable land in West Malaysia include IOI Properties Group Bhd, Kuala Lumpur Kepong Bhd, and Genting Plantations Bhd.
"We believe these players would now be looking at the possibility of diversifying into this business, considering things like suitability of landbank, ability to secure solar allocations, longevity of business model, availability of infrastructure, execution risks, and joint venture (JV) partners," it added.
RHB Research has maintained its 'Neutral' call on the plantation sector."We believe the bigger boys like SD Guthrie, KLK, and IOI will have a better chance of facing current industry headwinds, given their better balance sheets, stronger R&D divisions, and more sizeable land banks in suitable areas for the development of RE projects, real estate, and land sales.
"That said, the move to diversify earnings by venturing into RE or by disposing of land or developing land banks may take some time to gain traction and significantly impact earnings," it added.