Malaysia: Analysts keep ‘neutral’ stance on plantation sector as December 2023 palm oil stockpile continues to dip
Analysts have maintained status quo on their “neutral” stance on the plantation sector, as the country’s palm oil stockpile continued to dip in December 2023, in line with the downward trend in palm oil production.
Malaysian Palm Oil Council (MPOC) announced on Thursday that Malaysia’s palm oil stocks fell 4.6% month-on-month (m-o-m) to 2.29 million tonnes in December 2023, reaching their lowest level in three months. Palm oil output and exports declined 13% and 5% m-o-m respectively.
In a report on Thursday, RHB Equity Research said while it expects crude palm oil (CPO) prices to pick up in 1H2024 on seasonally low output and the impact of El Nino, demand remains lacklustre — so prices should be range-bound at RM3,500 to RM4,500 per tonne for the year.
“We expect stock levels to continue decreasing in the months ahead, on the back of a lower output season and higher demand related to festive seasons. This should, in turn, drive prices higher in 1H2024,” said the local research firm.
RHB Equity Research is maintaining a “neutral” call on the sector, and continues to prefer upstream players for now, with top picks being Ta Ann Holdings Bhd and Sarawak Oil Palms Bhd.
Likewise, Hong Leong Investment Bank Research (HLIB Research) is keeping to its 2024-2025 CPO price assumptions of RM4,000 per tonne and RM3,800 per tonne, as it expects El Nino’s impact on palm production and prices to kick in around mid-2024.
“We maintain our ‘neutral’ stance on the sector, given the absence of a notable demand catalyst. For exposure, our top picks are IOI Corp Bhd and Hap Seng Plantations Holdings Bhd,” HLIB Research added.
For Kenanga Research, its preferred stock pick is Kuala Lumpur Kepong Bhd (KLK), given its good track record and potential to expand upstream and downstream beyond Malaysia.
Maybank Investment Bank Research reiterated its view that the Malaysian Palm Oil Board (MPOB)’s monthly stockpile will continue to ease till end-March 2024, and CPO price should steadily strengthen during this low output cycle in 1Q2024.
It is also maintaining “neutral” on the sector, with “buy” calls on Ta Ann, Genting Plantations Bhd and Sarawak Oil Palms.
In a separate statement, MPOC said it is projected that Malaysian palm oil production in 2024 will see a growth of 1%, reaching 18.75 million tonnes.
“In 2024, the palm oil price outlook remains optimistic, with an expected average trading price of RM4,000 (per tonne). This positive projection is rooted in the shifting supply and demand dynamics in Indonesia, moving toward a negative growth pattern following the implementation of B35 in August 2023,” it said.
Despite the overall optimism for palm oil prices in 2024, MPOC said it is anticipated that palm oil prices will trade lower in January — between RM3,600 and RM3,850 per tonne. This is attributed to lukewarm demand from key importing countries and price competition from sunflower and rapeseed oil. In December 2023, the price premium of sunflower and rapeseed oil over palm oil in the European market was only US$3 and US$39 respectively.
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