PETALING JAYA: Research houses have maintained a “neutral” call on the domestic plantation sector, due to slower crude palm oil (CPO) production.
MIDF Research said that with all factors considered, its neutral call is with a CPO target price of RM3,500 per tonne for 2023.
It added that key downside risks for CPO include fragile demand outlook on the back of inflationary pressure coupled with tight household spending on high base interest rates locally and globally as well as narrowed price discount parity between CPO and soybean oil averaged at US$190.2 per tonne.
It noted that there was slower production in June with Malaysia’s CPO output declining to 1.5 million tonne, but it remained steady on a year-to-date basis at 8.1 million tonnes.
“The nation’s average FFB (fresh fruit bunch) yield fell by 4.7% year-on-year (y-o-y) to 1.2 tonne per hectare in line with slower production levels in the Peninsular states, which were roughly down by 15.8% y-o-y, although OER (oil extraction rate) remained relatively unchanged at 19.83% due to better evacuation activities during dry months.
“Overall, performance was deliberately hindered by low manuring activities completed prior year (on combination of labour shortage and lower round of fertiliser implication) exacerbated by unfavourable weather impacts (El-Nino) two-years in a row,” it said in a statement.
MIDF noted that post Eid-al-Fitr celebrations, palm oil exports saw inconsequential demand in June to 1.2 tonnes, following tight household spending patterns on high base interest rates globally.
The research house remarked that in June, the local CPO delivery price jumped to RM3,730 a tonne, but still averaged lower monthly at RM3,525 a tonne following the decrease in other vegetable oils prices.
Meanwhile, PublicInvest Research has maintain its “neutral” stand on the sector with a full-year CPO price forecast of RM3,800 a tonne.
It said that the rise in June palm oil inventories was slower than expected due to a decline in production while imports surged as Malaysian refiners took advantage of the increase in price differential between Malaysian and Indonesian CPO prices.
The lower-than-expected inventory level was positive for CPO prices.
At the point of writing, CPO futures rose RM77 to RM3,911 a tonne. For the first half of 2023, the CPO price averaged RM3,929 a tonne, down 38% y-o-y.