CPO prices expected to trend lower post-Q1

PETALING JAYA: HLIB Research sees crude palm oil (CPO) prices trending lower but remaining relatively stable for the remaining quarters of 2017, supported by a weak ringgit against the US dollar and biodiesel mandates, particularly in Indonesia.
“We maintain our average CPO price assumption of RM2,500 per tonne for 2017 and 2018 respectively,” HLIB said in a report yesterday.
It said CPO output will likely improve from 2Q17, as the carryover effect of El Nino and the seasonally low production cycle ends.
“While we believe current high CPO prices will sustain into 1Q17, underpinned by carryover effects of previous El Nino episodes and seasonally low production cycles, we see CPO prices trending lower for the remaining quarters of 2017.”
It added that Oil World projected world soybean output to increase by 7.3% to 334.3 million tonnes in 2017, mainly on the back of higher output from the US, India and Brazil. Besides, the US Department of Agriculture projects soybean plantings in the US to reach a record in 2017-18, which in turn means even more soybean supply upon harvesting.
The research house said among the major palm oil consuming countries, both India and China will remain as Malaysia’s top export destinations in 2017.
Palm oil demand for these two countries will unlikely increase significantly, as continued structural adjustment in China will continue to moderate its economic growth, hence limiting palm oil consumption.
It added that the current high palm oil prices typically cap demand, particularly from price-sensitive countries such as India; and the recent demonetisation of the Indian rupee may continue to weigh on its palm oil imports, at least in the near term.
“We maintain our ‘neutral’ stance on the sector, as we believe our anticipation of palm oil production recovery will be offset by lower CPO prices, given the lack of demand growth catalyst,” HLIB said.