CIMB Research lowers CPO price forecasts for 2014-2016 by 5-11%

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KUALA LUMPUR (Oct 28): CIMB Research has maintained its Neutral rating on the plantation sector and said it was cutting its average crude palm oil (CPO) price forecasts by 5-11% for 2014-16 to reflect larger-than-expected global edible oil supplies as well as weaker demand for biodiesel usage in Indonesia.

In a note Oct 27, the research house’s Ivy Ng said 3Q14's CPO price correction was steeper than expected due to stronger edible oils supplies prospects, weaker demand from China and lower crude oil prices.

Following a review of the latest fundamentals for edible oils and fats, Ng said she had lowered her  average international CPO price forecast by 5-11% for 2014-16 to US$840-910 per tonne (RM2,390-2,650).

Ng said the CPO price declines in 3Q14 were sharper than what she had previously expected, no thanks to stronger soybean supplies and weaker Chinese demand.

She said these factors, coupled with the recent sharp drop in crude oil prices, were likely to put a lid on near-term CPO prices.

“We cut our EPS forecasts for regional planters by up to 41% to reflect our CPO price downgrade. This lowers our target prices by up to 23% across the board.

“But we have upgraded six stocks as their valuations have improved. Our sector rating remains Neutral, with First Resources as our key pick,” she said.