PETALING JAYA: The current reduction in stockpiles is unlikely to boost the subdued crude palm oil (CPO) price despite Malaysian palm oil inventories dropping 10.3% to 2.45 million tonnes in May from the previous month, according to analysts.
PublicInvest Research pointed out that even with the shrinking inventory, the CPO price remains muted as high production is expected to be kicking in soon.
“At the point of writing, CPO futures stood at a one-month low of RM1,986 a tonne, which is a barely break-even level for small and inefficient players.”
However, the research house is expecting a recovery in the CPO price to RM2,100-RM2,300 a tonne in the second half of the year due to stronger demand from China and India.
With regard to the uptick in exports, PublicInvest highlighted that India registered the strongest growth of 75% due to the prefer-ential import duty on refined palm oil.
Malaysia has also seen strong CPO demand from China since 2015 as it switches demand from soybean oil to palm oil due to the impact of the African swine flu issue.
Despite rising demand from key destinations such as India, Iran and the European Union (EU), MIDF Research said higher export demand was insufficient to lift CPO prices as it was overwhelmed by external developments that exert downward pressure on CPO pricing.
The research house explained that the CPO production remains in overdrive mode which dampened the effects of higher export demand, causing the inventory level to remain elevated on a year-over-year basis.
“The negative sentiments from the EU’s ban on palm-oil based biofuels in June 2019 and the spillover effects onto the EU’s palm oil-based food sector will continue to inhibit any recovery in CPO price as well. All in, we are maintaining our negative stance on the sector with an unchanged 2019 CPO price target of RM2,090 per tonne.”
Meanwhile, PublicInvest retains it target price of RM2,200 a tonne for CPO with a neutral outlook on the plantation sector for 2019.