CPO prices are expected to remain above RM4,000 per tonne

PRICE Crude palm oil (CPO) is projected to remain above RM4,000 a tonne in the coming months and possibly until the first quarter of 2023, supported by concerns over short-term supply as well as price competitiveness, according to Hong Leong Investment Bank (HLIB) research.

The investment bank explained that growing concerns about lower short-term palm supply are due to the seasonally low palm oil production cycle and the onset of La Nina.

“The favorable spread of palm oil-gas oil (POGO) and the extensive discount of MSM compared to soybean oil will encourage the use of palm oil.

“The upward momentum in CPO prices will also be boosted by uncertainty regarding the future of the Black Sea grain corridor that will expire on Nov 19, 2022, and the easing of concerns regarding Indonesia’s palm oil stockpiles,” he explained in a research note on Thursday.

The investment bank is however confident that MSM prices will be in a downward trend from the second quarter of 2023 due to better supply visibility for vegetable oil due to the labor shortage in Malaysia becoming more manageable and normal weather.

The investment bank’s research also added that prices will also be dragged down by the increased risk of a global recession and increased inventories in major palm oil importing countries.

“We lower our CPO price expectations for 2022 and 2023 to RM5,050 a tonne compared to RM5,500 a tonne as well as RM4,000 a tonne from RM4,500 a tonne previously, mainly to reflect lower CPO prices in the third quarter of 2022 and better supply visibility in addition to the absence of demand catalysts,” he said.

HLIB explained that the expected CPO price for 2024, on the other hand, remained unchanged at RM3,800 a tonne.

The revenue expectations achieved by individual growers, following expectations of lower MSM prices, will be revised in the next financial performance reporting season, he added.

HLIB Research assigns an ‘overweight’ rating that expects the plantation sector to outperform the market over the next 12 months, supported by bullish valuations.

The main preferred counters for the plantation sector are Kuala Lumpur Kepong Bhd (KLK) and IOI Group. – Named

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