(Updated)

CGS-CIMB: CPO price drop was sharper than expected

CGS-CIMB: CPO price drop was sharper than expected
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KUALA LUMPUR (June 23): CGS-CIMB Securities Sdn Bhd said on Thursday (June 23, 2022) crude palm oil's (CPO) price decline to below RM5,000 a tonne on Wednesday (June 22, 2022) was sharper than expected, possibly driven by slower global economic growth concerns and as CPO prices tracked price losses of crude oil and rival edible oils, besides taking cue from rising palm oil exports from Indonesia.

"The benchmark active three-month futures palm oil contract for September [2022] delivery fell RM482/tonne, or 9.68%, to RM4,498/tonne, its sharpest daily loss since Jan 2020," CGS-CIMB analysts Ivy Ng Lee Fang and Nagulan Ravi wrote in a note.

They said the declining CPO price trend is broadly in line with CGS-CIMB's expectation based on CGS-CIMB's 2022 and 2023 average CPO price forecasts of RM5,600 and RM3,800 a tonne respectively.

CGS-CIMB's assumption is for CPO prices to average around RM5,000 per tonne in the second half of 2022 (2H22) versus RM6,391 a tonne recorded for the first five months of 2022, according to them.

"However, [Wednesday's] CPO price decline was sharper than expected, possibly driven by sentiment due to concerns over slower global economic growth. We expect demand for palm oil to be supported at a current price level of RM4,000-RM5,000 per tonne as edible oil stocks at consuming countries remain low due to earlier supply disruptions.

"A key area to watch is whether the palm oil producers will be able to meet the market's expectation of a stronger 2H22 oil palm harvest, as Malaysia faces an acute shortage of workers and current high palm oil stocks in Indonesia have negatively impacted palm oil supplies from smallholders.

"The declining CPO price will likely impact Malaysian upstream palm oil producers more than Indonesian CPO producers as the former face a steeper rise in production costs as well as fall in CPO prices versus 1H22," the analysts said.

Malaysia CPO futures prices fell nearly 10% to close at a six-month low on Wednesday (June 22, 2022), as the commodity's price tracked price losses of crude oil and rival edible oils, and took cue from concerns over rising palm oil exports from Indonesia, according to CGS-CIMB.

"Brent crude futures declined US$4.62/barrel, or 4%, to US$110.03/barrel on news of a plan by [the] US president to cut fuel costs amid concerns over a potential economic recession.

"Meanwhile, Dalian's most-active soyoil contract price fell 5.1% [on Wednesday], while its palm oil contract price slipped 3.8%. Soyoil prices on the Chicago Board of Trade were down 3.8% [on Wednesday] following forecasts of favourable weather conditions in the US Midwest.

"The higher palm oil export's availability from Indonesia will provide some relief from current tight edible oil supply situation," the analysts said.

At Bursa Malaysia on Thursday (June 23, 2022), CPO price for September 2022 rose RM245 to RM4,744 a tonne, after six consecutive days of decline.

Meanwhile, CPO price for August 2022 climbed RM234 to RM4,800 a tonne.

Chong Jin Hun