PETALING JAYA: The crude palm oil (CPO) price rally will likely peak in the first quarter of 2022 due to a potential recovery in supply and Indonesia, which is expected to lift its export restrictions post-Lebaran festival.

       According to Maybank Investment Bank (Maybank IB) Research, the confluence of factors that formed the perfect storm to lift the CPO futures price to a record of RM8,163 per tonne early this month, will soon pass.

       These factors included tight CPO supply, deteriorated South American crop prospects due to La Nina, the spike in crude oil prices and disrupted sunflower oil exports due to Russia-Ukraine conflicts, high fertiliser prices and Indonesia’s sudden restriction on palm oil exports since Jan 27.

       In its latest report, the research house has downgraded the plantation sector to a “neutral” call given the limited upside to its target prices following the recent listed planters’ share price outperformance.

       “However, a protracted Russia-Ukraine war into the spring planting season and or any agri-related sanctions on Russia or by Russia may just keep CPO average selling price lofty for a bit longer,” added Maybank IB.

       For now, the research house has downgraded Genting Plantations Bhd, TSH Resources Bhd and Boustead Plantations Bhd to a “hold” from a “buy” previously.

       Its top buys include Kuala Lumpur Kepong Bhd, Ta Ann Holdings Bhd and SGX-listed Bumitama Agri Ltd.

       On La Nina, Maybank IB said the wet weather brought ample rainfall to top producers, Malaysia and Indonesia, which provided a conducive environment for palm oil crop recovery this year.

       Still, sufficient fertiliser will need to be administered in the first half of 2022 (H1’22) to support optimal output recovery in H2’22, it added.

       In terms of cropping patterns, the research house believed that palm oil output could pick up seasonally from Q2’22 and hit a seasonal peak in H2’22.

       A timely return of foreign workers to Malaysia is also targeted by the end of Q2’22, which coincides with the onset of peak harvesting season in H2’22.

       On the flip side, the Russian-Ukraine war remains a wild card.

       Maybank IB noted that “There is heightened risk of greater sanctions on Russia or by Russians on the rest of the world (in retaliation)”.

       Russia and Ukraine sunflower oils account for 75% of the total global exports in 2021 marketing year.

       A prolonged war may also risk Ukraine farmers missing out on sunflower planting this late-spring.

       In addition, Russia is a key global potash and nitrogen fertiliser exporter accounting for more than 12% of global trades.

       “A quick end to the Russia-Ukraine war will help restore normalcy again,” said the research house.

       The upside risks to the sector and plantation companies include weaker-than-expected production recovery of palm oil and other vegetable oils this year.

       Other factors include Brent crude oil price inching closer to US$150 (RM627) per barrel and the weather anomalies at major palm oil and oilseeds producing regions persist this year.

       The research house noted that the downside risks include reversal in Brent crude oil to trade below US$80 (RM335) per barrel, weaker competing soybean and rapeseed prices, negative policies imposed by importing countries, stronger production and weaker global demand.