CPO to continue trade sideways in 4Q22

Crude palm oil (CPO) prices are expected to trade sideways at around RM3,500-RM4,000 per tonne towards year-end, benefiting from the price disparity between CPO and soybean oil (SBO), which is currently at around US$477 (RM2,150) per tonne.

However, MIDF Research is still maintaining its “positive” stance on the sector with a CPO target price of RM5,500 per tonne for 2022, but with a neutral bias towards 2023.

Nonetheless, it noted that there are downside risks to its call, such as the fragile demand outlook on the back of inflationary pressure, coupled with tight household spending due to high base interest rates both locally and globally, as well as Indonesia’s extended zero-levy policy for palm oil exports until Oct 31.

Meanwhile, Kenanga Research has maintained its “overweight” call on the plantation sector in view of the sector’s defensive qualities.

The plantation sector has been holding steadier compared to the broad market since around June 2022, being a producer of two day-to-day consumable products (food and fuel) with asset-rich net tangible assets and decent valuations, it said in a separate note on Tuesday.

“Palm oil prices have dipped by 30% since June 2022 but remain relatively firm, considering that peak season is here and demand is just picking up.

“While prices may stay muted for a month or so, record discounts to SBO prices, pending Deepavali demand from India and rising biodiesel sales are supportive of palm oil prices.

“Chinese imports, which can be among the biggest, should also improve when the country reverts to a new post-Covid normal,” it said.

As such, the research house is maintaining its CPO price forecast of RM4,500 per tonne for 2022 and RM4,000 per tonne for 2023.

Meanwhile, despite the stronger plantation results in the first half of 2022 (1H2022), Public Investment Bank Bhd (Public IB) said it expects to see weaker results in 2H2022, given the sharp reversal in CPO prices.

The research firm said the CPO spot price retreated from the recent high of RM7,516 per tonne to the current level of RM4,122 tonne, a massive drop of 45%.

“However, the oleo-chemical business in Malaysia is expected to see improved performance, given the recent cut in Indonesia’s CPO export tax, which makes it more competitive for Malaysian players.

“Meanwhile, there are some positive signs with regards to the domestic labour shortage issue as some companies have managed to bring in new foreign workers from Indonesia, Nepal and India, although the numbers are relatively small,” it said.

As such, Public IB has maintained its “neutral” call on the plantation sector, with a full-year CPO price assumption of RM5,000 per tonne.

Tags: price, palm oil