Analysts positive on plantation sector after palm oil inventories fell to one-year low in March

Analysts positive on plantation sector after palm oil inventories fell to one-year low in March
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KUALA LUMPUR (April 12): Public Investment Bank Bhd (PIVB) has maintained its “overweight” rating of the plantation sector with a full-year crude palm oil (CPO) price forecast of RM4,300 per tonne.

PIVB analyst Chong Hoe Leong said the rating was made after Malaysia’s March 2022 palm oil inventories fell more than expected and touched their lowest level in a year of 1.47 million tonnes, along with the biggest monthly export increase since September last year.

“Palm oil exports advanced 14% month-on-month (m-o-m) to 1.26 million tonnes, driven by all major consuming countries, namely China, the European Union, India, Pakistan and the US,” he said in a note on Tuesday (April 12).

Chong said a wider soybean oil-palm oil price gap would also make palm oil more attractive for price-sensitive buyers like India and Pakistan ahead of the Aidilfitri celebration.

He said soybean oil’s premium to palm oil prices expanded to the current level of US$203 (about RM859.20) per tonne from US$96 per tonne previously, registering the steepest increase in eight months as softer soybean production in South America pushed soybean prices dramatically in recent months.

In a separate note, CGS-CIMB Securities Sdn Bhd analsyt Ivy Ng Lee Fang projected palm oil stocks to rise 2.6% m-o-m to 1.51 million tonnes by end-April 2022.

She also expects palm oil output to fall 3% m-o-m by end-April 2022 due to a shortages of workers, and exports to decline 10% m-o-m on competition with Indonesia's palm oil exports.

“We believe CPO prices will trade at RM6,000-RM7,000 per tonne in April 2022 due to lower export supplies of sunflower oil crops from Russia and Ukraine, and higher demand ahead of the Aidilfitri festival on May 2 to 3, 2022.

“However, this will be partly offset by higher export supplies from Indonesia after it decided to abolish the domestic marketing obligation on March 20, 2022 and replace it with a higher export levy,” she said.

Ng said Malaysian planters are likely to see strong earnings for the first quarter of 2022 (1Q22) as average CPO prices rose 55% year-on-year (y-o-y) and 19% quarter-on-quarter to RM6,039.50 per tonne, and CPO output grew 4% y-o-y in 1Q22.

“We keep our average CPO price forecast of RM4,100 per tonne and 'neutral' sector rating,” she said.