CPO exports expected to weaken

PETALING JAYA: While exports have surged for two consecutive months ahead of the Mid-Autumn and Diwali celebrations, Hong Leong Investment Bank (HLIB) Research expects crude palm oil (CPO) exports to weaken moving into the following month due to the absence of major festivities that push demand for the commodity.

The research house said the expectation of lower exports is also because of the diminished price competitiveness of palm oil over soyoil, which curbs demand for palm oil.

CPO exports jumped 30.9% month-on-month to 1.81 million tonnes in August on the back of restocking activities ahead festive celebrations, evidenced by 41.7% and 125.8% month-on-month increases in exports to China and India.

As the rise in exports mitigated higher output, Malaysia’s CPO stockpile fell 17.3% month-on-month to 1.46 million tonnes in August, the lowest in more than five years since January 2011.

MIDF Research said Malaysia’s palm oil inventory level of 1.46 million tonnes as of end-August is 10% below consensus estimate of 1.63 million tonnes and 17% below its estimate of 1.76 million tonnes.

As CPO prices continue to hold well amid a gradual recovery in fresh fruit bunch (FFB) production, PublicInvest Research sees a significant rebound in the plantation sector’s earnings for the coming quarters.

“We remain positive on the CPO outlook with an average CPO prices forecast of RM2,500 for 2016 and RM2,600 per tonne for 2017,” it noted.

HLIB Research is maintaining a neutral stance on the plantation sector, with projected average CPO prices of RM2,400 and RM2,500 a tonne for 2016 and 2017 respectively.

Meanwhile, MIDF Research retains its positive view on the sector, with Kuala Lumpur Kepong Bhd as its top pick, as its earnings are expected to benefit from bullish CPO prices due to its high exposure to the palm oil business and good earnings growth of 41% year-on-year to RM536 million in the first half of financial year 2016.