Malaysia: Price of CPO likely to ease

KUALA LUMPUR: Palm oil industry expert Dorab Mistry expects the price of crude palm oil (CPO) to ease towards end of the year due to high supplies of vegetable oil.

UOB Kay Hian (UOBKH) Research, in its latest report, quoted Mistry as saying that CPO prices are expected to weaken to RM4,000 per tonne in the fourth quarter of 2022, due to good production in Indonesia, anticipation of the Russia-Ukraine war easing and demand destruction for palm oil.

Mistry remained upbeat that Indonesia’s CPO production for 2022 may add three million more tonnes on the back of ideal rainfall and good weather this year.

“Should the Russia-Ukraine war not continue past another 90 days, sunflower oil would return to the global market by third quarter of this year,” he added.

On the other hand, the demand for vegetable oil may worsen if the war continues since there is limited sunflower oil available in the market, according to Mistry.

Furthermore, there is a potential recession in 2023, which may further defer the recovery in demand.

Mistry also believed that the demand for palm oil might only return, when the CPO free on board (FOB) price is at the US$1,200 (RM5,274) per tonne level, especially from India, said UOBKH Research.

Mistry noted that the current high vegetable oil prices have dampened demand with an estimated global vegetable oil demand to be reduced by two million tonnes this year.

Meanwhile, UOBKH Research said CPO prices would continue to be supported by the supply tightness due to the bad weather in the last two years.

“The global oilseeds and vegetable oil tightness will only see a more balanced demand-supply scenario if South America is able to deliver bumper crops in the coming 2022 and 2023 season.

“South American soybean will only hit the global market in the second quarter of 2023, which also provide the support to the elevated prices in early part of next year,” said the research house.

Given the current palm oil market situation and limited supply from the Black Sea, UOBKH Research projected that CPO prices would remain elevated this year and into the first half of next year.

As such, the research house is keeping a “market weight” stance on the regional plantation sector.

“We still prefer Malaysian upstream players as they have benefited from the destructive Indonesia policies.

“Our top pick is Hap Seng Plantations Holdings Bhd as it will benefit the most from much higher spot market prices and suffer the least in terms of labour shortage.

“Among the big cap plantations in Malaysia, we prefer IOI Corp Bhd as it has the highest Malaysia exposure as well as higher refining margin as compared with other big-cap plantation companies,” said UOBKH Research.