KUALA LUMPUR (July 6): MIDF Research expects an average crude palm oil (CPO) price of RM2175 for 2015 and RM2100 for 2016, maintaining its ‘Neutral’ outlook on the sector.

In a plantation sector update today, the research house said it had reduced its forecasts for 2015 by 9% due to higher global soybean oil inventory, the rising US Dollar Index and current low Brent crude oil prices.

“The consensus CPO price forecast for 2015 at average RM2300/MT is still too bullish, as 1H2015 average is only at RM2228/MT,” MIDF said.

Historically, CPO supply has been higher in the second half of the year, which would also limit an upside in prices, they said.

The increase in global soybean supply would mean limited upside for the CPO price, since soybean oil and CPO are commonly used as substitutes in food and industry use.

MIDF also predicted that since the US$ index is unlikely to decline in the next 12 months, it would be hard for the CPO price to surge significantly, since both have a historically negative correlation.

Meanwhile, the research house’s estimate shows discretionary demand for biodiesel is likely to have stopped completely, due to the negative margin expected from low Brent crude oil prices.

“Our calculation shows that biodiesel production is only economically feasible, either scenario: Brent crude oil price to increase above USD82/barrel and CPO stays at RM2200/MT, or CPO price to decline below RM1900/MT, while Brent crude oil stays at USD70/barrel,” they said.

A weak El Nino affect was assumed in their calculations, noting even if the threat may cause significant production decline and a possible CPO price surge, the above other factors would keep a price upside, limited.

MIDF downgraded Sime Darby Bhd, Genting Plantations Bhd and Ta Ann Holdings Bhd to ‘Neutral’, with new target prices (TP) of RM8.80, RM9.06 and RM4.00 respectively.

It upgraded PPB Group Bhd to ‘Buy’, with a new TP of RM17.80.