PETALING JAYA: RHB Research expects a positive knee-jerk reaction to the prices of global oilseeds and vegetable oils, including crude palm oil (CPO) following the termination of Russia-Ukraine Black Sea grain deal.
Russia’s latest decision to cancel the deal, would stall the export of Ukraine grain to the rest of the world.
“However, any supply shortage would only kick in by September, while Ukraine has been relying less on the corridor of late to ship out its products.
“Buyers have also been stocking up on sunflower oil in recent weeks in view of this possibility, so stock levels at importing countries are high,” said the research house in its plantation report yesterday.
The United Nations-brokered Black Sea Grain Initiative initiated in July 2022 has been repeatedly elongated in short increments, amid increasing discontent from Russia over perceived restrictions that limit the full dispatch of its own grain and fertiliser exports, said RHB Research.
Some 25 million to 30 million tonnes of sunflower seed produced by Russia and Ukraine, represents about 45% of total global sunflower seed output.
“In fact, the previous outcome of the price spike post Russia-Ukraine war announcement was a hoarding of inventory resulting in weak demand for many months as importers wound down their high stock levels,” added the research house.
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RHB Research noted “It is still possible for Russia to change its mind (on the deal) as it has happened in October 2022, especially as Russia stands to lose with the cancellation of the deal.”
The research house also believes there is time for the grain deal issue to be resolved before any real damage is done to overall oilseed and vegetable oil supply.
“This is in view that the next crop cycle for harvesting in Russia and Ukraine only starts in September,” it added.
Furthermore, Ukraine no longer relies so much on the grain corridor.
According to UkrAgroconsult, since March 2023, more crops were shipped out of the country by river ports, rail, and road than by the grain corridor and only about one million tonnes was shipped out via the corridor in May versus two million tonnes via river ports.
“As such the reliance on the corridor has lessened considerably,” the research house noted.
For now, RHB Research has made no changes to its RM3,900 per tonne CPO average price assumptions, but said “We are in the midst of reviewing our price assumptions for 2024.”
It also maintained a “neutral” call on the plantation sector with top “buy” picks, namely Kuala Lumpur Kepong Bhd at a target price (TP) of RM26.10, IOI Corp Bhd (TP: RM4.35) and Wilmar International Ltd (TP: S$4.40 or RM15.11).