Palm oil prices to weaken to RM4,000 per tonne by 4Q, says analyst Mistry

Palm oil prices to weaken to RM4,000 per tonne by 4Q, says analyst Mistry
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KUALA LUMPUR (June 9): Crude palm oil (CPO) prices are expected to weaken to RM4,000 per tonne by the last quarter of the year (4Q22), driven by an increase of CPO production in Indonesia and dampened demand for vegetable oils, said Godrej International Ltd director and edible oil analyst Dorab Mistry.

In a report on regional plantation on Thursday (June 9), UOB Kay Hian said Mistry remains upbeat on Indonesia’s CPO production and reckons that the world’s largest palm oil producer will add another three million tonnes on the back of ideal rainfall and good weather this year.

“Despite the current labour crunch, Malaysia's CPO production for 2022 is expected to come in at 19 million tonnes,” the research firm added.

Mistry was a guest speaker at UOB Kay Hian's Palm Oil Market Outlook event held on Wednesday (June 8). During the Q&A session, Mistry also said the current high vegetable oil prices have dampened demand where he estimated that global vegetable oil demand for 2022 will be reduced by two million tonnes.

He noted that demand for vegetable oil may worsen if the Ukraine-Russia war continues since there is already limited sunflower oil available in the market. On top of that, a potential recession in 2023 may further defer the demand recovery.

Thus, Mistry believes the demand for palm oil might only return when the CPO FOB price is at US$1,200 per tonne level.

Meanwhile, UOB Kay Hian said CPO prices will remain supported by supply tightness due to the bad weather in 2020 and 2021.

"The global oilseeds and vegetable oil tightness will only see a more balanced demand-supply scenario if South America is able to deliver bumper crops in the coming 2022/23 season. South American soybean will only hit the global market in 2Q23, which also provides support to the elevated prices in early part of 2023,” the research house said.

UOB Kay Hian is maintaining a "market weight" call on the regional plantation sector as it expects CPO prices will remain elevated for the year and into 1H23.

The research house also prefers Malaysian upstream players as they have benefited from the destructive Indonesia policies. 

“Our top pick would still be Hap Seng Plantations Holdings Bhd, with a target price of RM4 as it will benefit the most from much higher spot market prices and suffer the least in terms of labour shortage.

“Among the big cap plantations in Malaysia, we prefer IOI Corp Bhd, with a target price of RM5.15, as it has the highest Malaysia exposure as well as higher refining margin as compared with other big-cap plantation companies,” it added.

Kang Siew Li