PETALING JAYA: There are expectations that the palm oil inventory in the country will fall this month, driven by several factors.

       They include international buyers diverting their purchases to source from Malaysia and the anticipated lower production due to fewer working days.

       In the longer term, UOB Kay Hian Research said buyers would remain with Malaysia for the time being.

       A potential cut in the palm oil export tax from 8% to between 4% and 6% and a plan to slow the implementation of the biodiesel mandate by the government could also help to meet the high global demand for crude palm oil (CPO).

       Despite the opportunity to capitalise on the current situation, the research house said Malaysia is being limited due to the acute labour shortage situation in the palm oil sector.

       “In our view, it would be more critical to bring in labour to catch up the harvesting round and productivity for Malaysian planters during the period when CPO prices are high,” the research house said.

       Meanwhile, MIDF Research expected the stockpile of palm oil to rise gradually in the second quarter and peak in the third quarter based on historical trends.

       “In the immediate term, we believe CPO exports for the upcoming months would be moderated by the impact of the lockdown in China.

       “Nonetheless, following Indonesia’s widened export ban, we reckon there would be a shift in the demand for CPO towards Malaysia, given that 45% of India’s palm oil imports came from Indonesia,” MIDF Research said.

       CPO prices are expected to remain elevated throughout this year, according to the research house.

       This is supported by factors such as the continued Russia-Ukraine war, Indonesia’s widened palm oil export ban and subdued production outlook for soybean due to the ongoing drought in south America.

       “All factors considered, we maintain our positive stance on the plantation sector. We put our target CPO average price for the year of RM4,300 per tonne under review for an imminent upgrade,” MIDF Research said.

       However, according to RHB Research, the markets which are forward-looking may already be pricing in what will happen after the tight supply situation eases up.

       “The problem we need to address is once the Indonesia export ban is lifted, the Russia-Ukraine war ends, and the labour shortage situation is resolved in Malaysia.

       “This will cause the stock levels in Ukraine and Indonesia to build up and with vegetable oil supply being abundant, prices will decline,” it added.

       RHB Research raised its CPO price assumption to RM5,300 per tonne for the year and at RM4,300 per tonne for 2023 and kept its 2024 forecast at RM3,500 per tonne.