KUALA LUMPUR (Sept 12): Morgan Stanley Asia says the recent positive crude palm Oil (CPO) pricing environment is unsustainable, amid a muted demand outlook and a pick-up in production in 2018.
 
“We think that the recent price strength is unsustainable and reiterate our cautious stance on the industry,” the research firm said in a note to clients, following the release of August plantation statistics by the Malaysian Palm Oil Board yesterday.
 
“We anticipate further demand pressure as higher excise taxes on CPO and refined CPO products are likely to pressure CPO demand in India,” it said in the note prepared by analysts Daniel Lau, Wayne Lau and Mayank Maheshwari.
 
As for the demand from China, Morgan Stanley Asia said it has also been relatively muted, despite low inventory levels.
 
“We also anticipate CPO production to revert to 2015 levels, which will further pressure CPO prices,” the analysts said. “We expect CPO prices to decline from around US$650 per tonne currently to US$600 by year-end and US$550 by end-2018.”
 
Commenting on the latest MPOB data for August, Morgan Stanley Asia said Malaysia’s production level has lagged expectations, while export demand has exceeded expectations, resulting in CPO prices expected to increase by 1.5%.
 
“This drove a 4% surge over the past month, partially driven by stronger soybean oil prices, as dry weather in the Americas raised concerns on soybean yields, while damage caused by Hurricane Harvey increased soybean production unease,” the form added.
 
Yesterday, MPOB data showed Malaysia’s palm oil inventory grew 8.8% month-on-month, from 1.78 tonnes in July to 1.94 million tonnes in August, which was the highest level since February 2016, but did not manage to cross the two-million tonne mark.