PETALING JAYA: Plantation analysts are revising upward their crude palm oil (CPO) average price forecasts to above RM4,000 per tonne for this year, from their earlier projections between the RM3,100 and RM3,400 per tonne levels.
This is following a confluence of factors, which have driven CPO prices to historic record levels in recent weeks.
The CPO spot price is trading above the RM6,000 per tonne mark while the third month benchmark CPO futures contract closed firmer at RM5,530 per tonne last Friday.
Even the KL Plantation Index, the index that tracks plantation companies on Bursa Malaysia has sprint up by almost 20% year-to-date on bullish fundamentals.
Maybank Investment Bank (Maybank IB) Research has raised its average CPO price to RM4,100 per tonne for 2022, while both Hong Leong Investment Bank Research (HLIB) and RHB Research have revised their projections higher at RM4,300 per tonne respectively.
Maybank IB noted that “overall, following the good start to the year, we now raise our CPO ASP forecasts.
“Our earnings, calls and target prices (TPs) for listed planters under our coverage will be reviewed during the upcoming results season,” it said in its latest report.
While the present high prices will not likely to sustain, Maybank IB anticipated that CPO prices will stay lofty in the immediate term.
It said the industry is in its seasonally low production cycle, thus limiting available supply.
However, the industry output is likely to pick up from the second quarter of financial year 2022 onwards.
Maybank IB said factors driving the current record CPO prices include the tight supply situation, rising cost pressures from higher fertiliser prices, labour shortage in Malaysia and Indonesia’s latest palm oil export policy. HLIB Research meanwhile said the CPO prices will likely remain at elevated levels possibly until the first half of 2022.
This is supported by weaker production outlook for corn and soybean in South America and Indonesian government’s recent move to expand its export permit requirement for all palm oil products, which will likely disrupt palm oil supply chain.
“While we continue to believe that a pullback in CPO price will materialise when palm oil output recovers, this hinges on several uncertainties,” the research house said in its latest report.
Furthermore, the environmental, social and governance (ESG) concerns on the sector may have hit rock bottom and should ease soon, it added.
HLIB Research also noted that the earnings forecasts and TPs on individual planters to reflect high CPO price and production cost assumptions will be adjusted in the upcoming results season. For now, it has maintained an “overweight” call on the sector with its top picks as IOI Corp Bhd, Kuala Lumpur Kepong Bhd and Sime Darby Plantation Bhd.
RHB Research noted that “Despite our increase in CPO price assumptions, we believe valuations are likely to remain dampened by ESG issues, while earnings per tonne could actually be lower year-on-year, based on the current tax and costing dynamics.”
“We also recommend a profit taking strategy, barring any unforeseen circumstances, we continue to expect prices to moderate in the second half of 2022.”
With the CPO price at RM5,500 per tonne, RHB Research expects that Sabah and Sarawak planters would realise prices of RM4,657.50 per tonne, while East Malaysian planters would realise RM4,732.50 per tonne.
In Malaysia, the windfall taxes based on a CPO price of RM5,500 is RM375 per tonne in West Malaysia and RM300 per tonne in East Malaysia.
The research house, which maintained an underweight call on the sector, said CPO prices have risen of late, on the back of intensive speculation in the futures market.
Concerns spike about the Russia-Ukraine tensions having an impact on crop output, rippling effect from rising energy prices and lingering concerns about the impact of La Nina on South American crops. “The Russia-Ukraine tensions is a black swan event we had not accounted for,” the research house added.