PETALING JAYA: The outlook for crude palm oil (CPO) is bullish for now, but this could be disrupted by weaker demand in the short term.

       Analyst tracking the sector said September data showed that production of CPO came in below expectations, but October is expected to see a production rise with growth likely to come from Peninsular Malaysia and Sabah.

       “We now expect production to peak in October-November, in line with the majority of the planters’ views,” Kenanga Research said in a sector update yesterday.

       At the same time, the research house also said it expected exports to moderate in October.

       “While we expect continued strength from China, demand from countries in the Middle East and Africa could moderate. India’s recent edible oils stock limit should also be a drag,” it told clients.

       It noted that September data was “bullish for CPO prices” but this could be eclipsed by signs of weaker demand.

       It said its integrated pick with a defensive overall margin against CPO price variability was Kuala Lumpur Kepong Bhd, on which it has a target price of RM23.60.

       TA Research, meanwhile, said that it was not expecting any major announcements in the upcoming Budget 2022, “which will put the plantation sector under the limelight.”

       “As usual, some incentives may be given to smallholders and Felda settlers to upgrade basic infrastructure and for new planting/replanting.

       “Meanwhile, we will continue to monitor the acute power shortage situation and soybean crushing margins in China,” it highlighted.

       TA said its CPO price assumption of RM3,500 per tonne for 2021 and RM3,100 per tonne for 2022 was currently “under review”.

       “We reiterate our ‘overweight’ recommendation on the plantation sector.

       “Key downside risks to our sector recommendation include higher-than-expected rise in soybean production, which would compress prices of other edible oils in the market, weaker-than-expected demand in China and India, delay in global economic recovery due to a prolonged Covid-19 pandemic and unfavourable government policies, which will affect the demand for palm oil,” TA said.

       On another issue related to the sector, the Malaysian Palm Oil Council noted earlier this month that more allocation for the palm oil industry was needed to ramp up research and development for the commodity and for the production of more downstream products.

       A Bernama report, quoting the organisation’s science, environment and sustainability division director Ruslan Abdullah, said that Malaysia produced about 20 million tonnes of palm oil annually, which brings in about RM70bil in revenue for the country.

       However, he said the allocation for the industry had been “very small”.

       “It is not even 1%. It does not bring justice to what we are doing.

       “Let’s not talk about investing in other crops yet like durian or bamboo, for example. We can never get an industry as lucrative as palm oil,” he was quoted as saying in the Oct 6 report.