KUALA LUMPUR (Sept 4): Malaysian palm oil inventory is expected to be higher in August, putting a cap on the performance of crude palm oil (CPO) prices within a trading range of RM1,900 to RM2,200 per metric tonne, according to CIMB Investment Bank Research.

In a report today, the research house said it saw downside risk to its earnings forecasts for planters, and should prices stay below RM2,000 the rest of the year, the 2014 average CPO price would be “a mere” RM2,370.

CIMB Research’s Regional Head for Plantations Ivy Ng said she maintained her ‘neutral’ call for the sector, with a preference for planters that offer strong output growth prospects.

“A survey conducted by our futures team revealed that palm oil production in Malaysia was still strong in August,” she said.

CPO production in August could rise by 13.7% month-on-month (m-o-m) and 9% year-on-year to 1.89 million tonnes, the survey of 20 Malaysian planters showed.

Based on the survey, Ng forecast palm oil stocks would rise 16% m-o-m to 1.96 million tonnes at end-August.

“This, combined with the weak exports, could lead to the steepest monthly jump in Malaysian palm oil inventory for this year,” she added.

According to Ng, palm oil exports were weak, declining by about 5% m-o-m due to stiff competition from other edible oils and weaker demand from China.

Given these factors, Ng expected the average 2014 CPO price to be a mere RM2,370 per metric tonne, assuming CPO price stayed at RM2,000 per tonne for the rest of the year.

“We maintain our neutral rating for the sector and prefer planters that offer strong output growth prospects," she said.