PETALING JAYA: A prolonged tightness in the palm oil supply is expected to push the price of the commodity higher, which is a short-term positive for local planters.

       According to CGS-CIMB Research, factors such as the recent crude palm oil (CPO) export ruling in Indonesia, drought in South America, delays in foreign worker intake in Malaysia and the low production season in the first quarter of 2022 have led to a tight supply situation.

       The research house in its latest report also envisaged that Malaysia’s palm oil stocks will fall by 1.2% month-on-month (m-o-m) to 1.56 million tonnes as at end-January 2022 due to weaker output.

       The official palm oil statistics for January 2022 will be released by the Malaysian Palm Oil Board on Feb 10.

       A survey of palm oil areas by the CGS-CIMB Futures team revealed that the local CPO output is expected to drop by 14.1% (m-o-m), but grew 10.6% year-on-year (y-o-y) to 1.25 million tonnes in January 2022.

       It also expects palm oil exports in January this year to fall 27% m-o-m, but rose 9.3% y-o-y to 1.04 million tonnes based on the latest export statistics by cargo surveyors.

       CGS-CIMB Research said: “We estimate that Malaysia’s palm oil inventory probably fell 1% m-o-m, but grew 18% y-o-y, to 1.56 million tonnes at end-January 2022.”

       The likely m-o-m drop in stock levels is lower compared with the historical trends in Malaysia’s January palm oil stock movements.

       “Our forecast palm oil stock at 1.56 million tonnes for January this year is 31% below the 10-year historical January average of 2.08 million tonnes,” added the research house.

       Meanwhile, CGS-CIMB Research noted that Indonesia’s new export ruling on palm oil has worsened the palm oil supply squeeze situation.

       The spot CPO price in Malaysia rose 4.5% to a new high of RM5,744 per tonne on Feb 4, after Indonesia announced new export rules for its palm oil on Jan 27.

       This new ruling could delay the exports of palm oil from Indonesia as palm oil exporters scrambled to satisfy the new ruling of selling 20% of their planned palm oil exports in the local cooking oil market.

       Planters and palm oil exporters in Indonesia had to sell at a maximum market price of 9,300 rupiah (RM2.71) per kg for CPO, which is 38% below the market price for CPO of 14,970 rupiah (RM4.36) per kg as at Feb 4, 2022.

       Other factors that are pushing CPO prices higher this month include the unresolved acute labour shortage issue in Malaysia and concerns over South America drought which is likely to reduce Brazil’s soybean output. However, the high CPO prices will likely cause demand destruction in the food and fuel markets, added CGS-CIMB Research.

       Furthermore, there is upside to CGS-CIMB Research’s projected average CPO price of RM3,600 per tonne in 2022, as “we had expected a faster resolution to the labour issue and had not projected Indonesia’s move to regulate domestic cooking oil through export rules”.

       It reiterated a “neutral” call on local planters as concerns over ESG could be offset by strong earnings and undemanding valuations.