KUALA LUMPUR: Analysts are maintaining their ‘neutral’ rating on the plantation sector, given the lack of notable demand catalyst for the sector.
Hong Leong Investment Bank (HLIB) said stockpiles likely peaked in October 2023, and started trending down from November 2023.
It added that exports will likely be subdued in the near term as demand for palm oil tends to weaken during the winter season
“Besides, we note that narrower palm oil-gas oil spread and crude palm oil (CPO) discount to soybean, relatively high stockpile in key importing countries, and the absence of major festive season will likely curb near-term demand for palm oil,” HLIB said in a note today.
As such, it had maintained CPO price assumptions of RM3,850 per metric tonne for 2023 and RM4,000 per metric tonne for 2024.
Palm oil stockpile remained on an uptrend, rising by 5.8 per cent month-on-month to 2.45 million tonnes in October 2023 – the highest since April 2019 – boosted mainly by seasonally higher cropping patterns and lower domestic consumption.
In a separate note, MIDF Research also maintained its average CPO target price forecast at RM3,800 per metric tonne for 2023.
“The delayed El-Nino effect (which would constrict the supply side) could be a potential catalyst for the CPO prices to remain elevated for the remainder of the year at RM3,800-RM4,200 per metric tonne.
“However, we are concerned about its downstream product prospects, as high inflationary pressures combined with tight household spending due to high base interest rates both locally and worldwide are hindering demand,” it added.
Presently, MIDF Research said the El-Nino weather pattern is still lingering but remains weak, building up its momentum before entering the strong phase in the second quarter of 2024 (2Q 2024).
“We believe that due to the Inter Monsoon (October to mid-November) and upcoming Northeast Monsoon events, the arrival of El-Nino may be delayed somewhat.
“However, it still has more than an 80 per cent chance of happening in 2024, according to the Malaysian Meteorological Department, hence, we anticipate normal production level to remain in 1Q 2024 (subject to its seasonality) but it would gradually decline in drier months in 2Q 2024.
“Hence, this would usher CPO price to hinge on a high side in the first half of 2024,” it added. – BERNAMA
