KUALA LUMPUR (April 7): Current high crude palm oil (CPO) prices will not be able to sustain for long based on its historical trends, said Moody's Investor Services.

Moody's projection for the commodity is at the range of RM2,200 to RM2,600 a tonne over the next 18 months, according to its corporate finance group vice president and senior analyst Nidhi Druv at the company's Inside Asean Malaysia Media Roundtable today.
 
Nidhi noted that CPO is one of the few commodities that has bucked the downward price trend last year, having risen to the highest level since 2012. This, she said, should support palm oil producers earnings and cash flow generation.

“In terms of price recovery, what has helped and will likely support prices in the near term is continued supply constraints. These include labour shortages because of movement restrictions, as well as a decline in production yields due to bad weather,” she said.

Besides the commodity's price movements, Moody's is also looking at disruptions to producers operations, regulatory developments and environmental, social and governance (ESG) considerations, she said.

As to when Moody's expects CPO prices to weaken, its corporate finance group assistant vice president and analyst Maisam Hasnan said the group could not comment on spot CPO prices.

“The way we do our projections for companies is to assume a medium-term range for the next 18- to 24 months and we rate companies based on that. We don’t rate the spot. What that means is that when prices are very high, we don’t upgrade palm oil companies. Similarly, when prices are low as you saw in 2018 and 2019, we wouldn’t be downgrading the companies as well,” said Maisam.

At the time of writing, the benchmark third month CPO futures contract was trading RM47 higher at RM4,085 per tonne.