HLIB Research: CPO prices to remain above RM3,500 per tonne in 2Q, trend down 'more noticeably' from 2H21

(Photo by Mohd Suhaimi Mohamed Yusuf/The Edge)

(Photo by Mohd Suhaimi Mohamed Yusuf/The Edge)

-A +A

KUALA LUMPUR (April 12): While Hong Leong Investment Bank (HLIB) Research is expecting crude palm oil (CPO) prices to remain elevated at above RM3,500 per tonne in the second quarter of 2021 (2Q21), the research firm sees that CPO prices will trend down more noticeably from the second half of the year (2H21) onwards.

“We believe CPO prices will start easing from 2Q21 (albeit on a gradual basis) on the back of the absence of weather disruption (as La Nina has already subsided) and improving supply prospects for soybean,” said its analyst Chye Wen Fei in a note released today.

Chye explained that CPO prices will likely trend down more drastically in 2H21 due to a better supply outlook for soybean output, particularly in the US and Brazil, which collectively account for about 65% of the world’s total soybean output; seasonally higher palm oil output in 2H; and a demand pullback when a recovery in supply of major edible oils is in sight amid the absence of fresh demand catalysts.

Still, Chye raised her CPO price projection for 2021 to RM3,200 per tonne, from RM2,700 per tonne, mainly to reflect the strong average CPO price registered in 1Q21 of RM3,919 per tonne, and supply tightness in vegetable oils, which will likely persist into end-2Q21.

For 2022 and 2023, on the other hand, she raised her CPO price assumptions by RM100 per tonne to RM2,800 per tonne on the back of anticipated supply of vegetable oil, in particular soybean and palm oil, which is expected to have returned to normalcy by then.

Despite the upward revision of her CPO price assumptions, Chye maintained her "neutral" stance on the sector as she believes the current high CPO prices will not be sustained over the longer term.

Post revisions of target prices (TPs), she upgraded the rating of IOI Corp Bhd to "buy" from "hold" and downgraded Hap Seng Plantations Holdings Bhd’s rating to "hold" from "buy".

Apart from IOI Corp (TP: RM4.67), other top picks of the research house from the sector are Kuala Lumpur Kepong Bhd or KLK ("buy"; TP: RM26.64), IJM Plantations Bhd ("buy"; TP: RM2.31) and TSH Resources Bhd ("buy"; TP: RM1.18).

Read also:
Malaysia’s March CPO output rises m-o-m for first time in six months
Govt to focus on selling palm oil to East and West Asian countries, says deputy minister
Malaysia's CPO production to rise to 19.5 million tonnes in year ending September 2021 — US Department of Agriculture

Joyce Goh