CPO price to sustain until 1H of 2021: PublicInvest

KUALA LUMPUR: The current crude palm oil (CPO) price momentum is likely to sustain until the the first half (1H) of 2021 due to strong palm oil demand, tight inventories and the effect of global stimulus measures, according to Public Investment Bank Bhd (PublicInvest).

This was made after combining prominent speakers’ views at the two-day virtual Palm and Lauric Oils Price Outlook Conference 2021., the firm said.

PublicInvest analyst Chong Hoe Leong said industry price forecasts ranged from RM3,300 to RM4,700 per tonne compared to the firm’s CPO price projection of RM2,500 per tonne.

“Generally, the CPO price outlook views are quite divided this round and there are more bullish calls on the CPO prices,” he said in a report today.

Chong said most bullish call on the CPO price was only up to June as the strong comeback for global vegetable oils could pressure the palm oil prices in the second half of this year.

“The bullish calls on the CPO price outlook are mainly supported by the fundamentals including the low global palm oil inventories, which represent only 15.6 per cent of annual usage and draught in July/Sept 2020 severely damaged sunflower seed crops in the Black Sea region.”

Additionally, he said declining rape oil supplies due to the loss of attractiveness in the Europe and China and a sudden change in the global soybean balance from surplus to tightness within five months.

This follows the downward revisions in the United States, Indian, Argentine and Brazilian crops coupled with strong demand from China.

“CPO prices may have overreacted due to the ample liquidity from investors as a result of the global stimulus measures.

“The current CPO price may not be sustainable as funds could pull back anytime from the commodity market when seeing the treasury yield hike,” he said.

Chong said favourable weather in the last six months could potentially pose an upside risk to the production.

“Despite the bullish CPO price performance, most plantation stocks’ performance remains lacklustre as the market does not believe the current record high CPO prices are sustainable in the long-term,” he said.

Chong said various concerning the environmental, social and corporate governance (ESG) would make investors peg a lower valuation for the plantation sector.

“Production could also make a strong comeback anytime following the heavy rainfall in the past. In terms of risk- reward, we think CPO prices are more hinging towards the downside and it should start trending downward once the inventory recovers,” he added.

Source: NST