PETALING JAYA: The earnings prospects of listed planters for the second half of this year will remain intact as the price of crude palm oil (CPO) is expected to trade above RM3, 000 per tonne.

       CPO is currently trading between RM3, 600 and RM3, 640 per tonne.

       BIMB Securities, in its latest sector update, said the higher CPO price forecast would amplify the revenue and earnings growth momentum for plantation companies for the rest of 2021.

       “Our base case scenario is for CPO price to continue trading above RM3, 300 per tonne in the short-term before moderating in the later part of third quarter this year.

       “We believe that our bullish outlook in CPO price is a reflection of the anticipated tight supply of edible oils including palm oil production and stockpiles in Malaysia, compounded by improving demand scenario and rally in soybean oil (SBO) prices, ” said the research house.

       Although any price increase could be capped by the narrowing of the price differential between CPO and SBO, BIMB Securities believed that this is inconsequential.

       The constraints due to Covid-19 related supply chain disruptions and low inventories in some vegetable oils producing or importing countries, as well as easing of coronavirus restrictions could improve demand for CPO, it noted.

       BIMB Securities said “these factors will lead to elevated level of CPO, trading between RM3, 300 and RM3, 600 per tonne possibly up until July to August.

       “Hence, we have raised our average CPO forecast to RM3, 100 per tonne for this year from RM2, 950 per tonne previously, ” noted the research house.

       On the contrary, CPO price is anticipated to be modest in the later part of the third quarter of this year in line with the higher-than-expected soybean supply in marketing year 2021-2022 based on the US Department of Agriculture data.

       However, the main risks to planters’ earnings will include high operational costs, suppressed proft margin on lower-than-expected production due to weaker yield and labour shortage issues, it added.

       Meanwhile, the near-term higher price momentum is seen to be supported by the widening discount of the price differential between CPO and SBO on the Chicago Board of Trade (CBOT), Argentina, Brazil and Rotterdam markets.

       The research house pointed out that the current discount parity is at US$499 (RM2, 072) per tonne in CBOT, followed by US$215 (RM892) per tonne in Brazil, US$200 (RM830) per tonne in Argentina and US$439 (RM1, 822) per tonne in Rotterdam.

       “The widening of the price discount between CPO and SBO would make palm oil more competitive against its substitute oil especially to the price sensitive importing countries.

       “Nonetheless, the anticipation of improved edible oils supply prospect and easing of biofuel blending mandate in the United States, Brazil and Argentina may prompt a moderation in the short-to-medium-term prices going forward, ” said BIMB Securities.

       On the other hand, the widening of the price differential between CPO and SBO prices at China’s Dalian

       Exchange of 1, 118 yuan (RM718) per tonne versus one year average of 982 yuan (RM630) per tonne may provide short-to-medium-term demand for palm oil against SBO.