India’s import tax hike, peak 4Q production to drag CPO prices down, say analysts
18/09/2024 (The Edge Malaysia), Kuala Lumpur - Analysts predict a price correction for crude palm oil (CPO) in the fourth quarter of this year (4Q2024), primarily due to India's recent decision to raise import taxes on edible oils and the upcoming peak production season, especially in Indonesia.
CIMB Securities said India's decision to increase import taxes on edible oils, including palm oil, by 20 percentage points will raise cost for imported oils and reduce palm oil's competitiveness.
As a result, this could lead to decreased demand in India and potentially lower CPO prices.
For refiners in Malaysia and Indonesia, the impact is expected to be neutral. The refining spread advantage for Indian refiners remains unchanged at 8.25 percentage points between the duties on crude and refined edible oils, the research house said.
“We maintain our 2024 forecast for average CPO prices at RM3,900 per tonne (8M2024: RM4,005 per tonne), with expectations that CPO prices will weaken during the peak production season in 4Q2024," the research house said in a note on Wednesday.
“We continue to favour SD Guthrie Bhd (KL:SDG), IOI Corp Bhd (KL:IOICORP), Ta Ann Holdings Bhd (KL:TAANN), and Hap Seng Plantations Holdings Bhd (KL:HSPLANT) or exposure to the sector,” it said.
The third-month CPO contract, which peaked at RM4,137 per tonne on April 4, stood at RM3,838 per tonne at the time of writing, according to Bloomberg data.
The Bursa Malaysia Plantation Index is up 1.96% this year, tracking similar increases in the prices of the commodity in the period.
In a separate note, Maybank Investment Bank maintained its view that the high CPO price is not sustainable as a wider discount is needed to sustain demand, especially if the industry’s peak output has been pushed back to the fourth quarter, especially in Indonesia.
“It is also worth pointing out that the recent price strength of CPO (due to tight CPO supply in Indonesia) meant CPO price has traded at narrowed discounts to Northwest Europe soybean oil (US$10/tonne or RM42.42/tonne) and Germany rapeseed oil (US$31/tonne), below historical averages,” it said.
In fact, compared to US 1M soybean oil, CPO has even been trading at a slight premium of US$17/tonne. This suggests that CPO is no longer as price-competitive as other major oils, Maybank IB added.