“It is possible that the worst has passed for the plantation sector as a whole. That is, you won’t be seeing as much defaults compared to 4Q08 and 1Q09.
“But whether CPO has bottomed-out or not is still uncertain. The outlook for CPO in the next one to two years has a lot of uncertainties,” an analyst from a local research house told The Edge Financial Daily.
Datuk Lee Yeow Chor, executive director of IOI Corporation Bhd, was reported last week as saying that the worst was over for the plantation sector. The country’s second-largest palm oil producer also said it was bullish on the CPO price outlook for the next three months.
CPO for September delivery closed unchanged at RM2,175 last Friday while plantation counters ended lower.
Kuala Lumpur Kepong Bhd dropped 20 sen to RM11.90, Batu Kawan Bhd lost 15 sen to RM8.65, Kulim (Malaysia) Bhd shed 10 sen to RM6.25 while Far East Holdings Bhd and Genting Plantations Bhd dipped five sen each to RM6.20 and RM5.50, respectively.
Sime Darby Bhd and IOI Corporation Bhd were unchanged at RM7.25 and RM4.74 respectively, while IJM Plantation Bhd gained four sen to RM2.64.
Although CPO may not go anywhere near last year’s low, “which was an extreme”, the analyst said on a year-on-year (y-o-y) basis, the average annual price for CPO would trend downwards.
“Last year’s average annual price was about RM2,800, due to the peak. But this year, it will be lower and there is a good chance that CPO average annual price will be even lower next year,” he said.
This is due to the growing supply of CPO y-o-y, he said, and the question was whether or not there would be enough demand to absorb the growing supply.
“It may not be felt so much this year due to the weather factor. But next year, we may be running at full supply. Where will the excess supply go to?
“So, to say that CPO has bottomed-out, I think maybe not,” he said.
OSK Research in a recent report said the near-term technical outlook of palm oil futures turned bearish when technical support of the CPO rally since last October was violated on June 12.
Since then, the market has been consistently pressured by the downtrend line, the research house said.
“The futures market is approaching a key support at the RM2,150 per tonne level, from which a breakdown would likely see the price falling quickly to the 200-day MAV (moving average) line, which is situated at the RM2,018 per tonne level,” it said.
CPO for September delivery hit an intraday high of RM2,181 and a low of RM2,085 last Friday.
Meanwhile, a trader said the general tone in the market was weak.
“Currently, our critical support level is RM2,150. If it breaks, then it will be quite fragile for trading because people are not confident in the price. Our next support level is the 200-day MAV which is RM2,010,” she said.
This article appeared in The Edge Financial Daily, July 6, 2009.