Lower crude palm oil prices on the horizon

Crude palm oil (CPO) prices are projected to soften in the second quarter of this year, weighed down by increasing supply and declining prices, says CGS International Research (CGSI Research) .

Palm oil production for March showed that Malaysia’s palm oil inventory rose 4% month-on-month (m-o-m), according to the Malaysia Palm Oil Board (MPOB).

CGSI Research said the increase came even as stronger-than-anticipated domestic consumption helped offset the higher- than-expected output.

Palm oil production also came in higher than expected at 1.39 million tonnes for the month in review, reflecting a 16.8% m-o-m increase.

“We reckon the variance was due to a rush to harvest crops ahead of the Hari Raya holidays at the end of March,” the research house said.

Looking ahead, CGSI Research said the expected dip in CPO prices will be largely driven by improving production conditions and geopolitical pressure.

It said the ongoing worldwide trade volatility is creating uncertainty in the global edible oil markets, which may potentially disrupt supply chains and dampen demand.

On a brighter note, palm oil production is expected to remain elevated this month, supported by yield recovery and favourable weather conditions.

Inventory for this month is also expected to be flat or slightly higher on the back of better production, even as exports increase.

However, although exports showed strong growth early this month, the pace is expected to slow down due to gas-supply disruptions caused by the massive pipeline explosion in Selangor on April 1.

“If the gas supply disruption lasts for one month and hits operations of oleochemical and refinery plants in the affected areas, this would impact about 10% to 15% of Malaysia’s total palm oil exports, based on our estimates,” the research house said.

CGSI Research maintained a “neutral” call on the sector and kept its CPO price forecast for this year at RM4,000 per tonne.

“We recommend focusing on pure Malaysian upstream players amid uncertainty in Indonesia, with a preference for high-dividend-yield names like Hap Seng Plantations Holdings Bhd and Ta Ann Holdings Bhd.

“We also favour SD Guthrie Bhd with its non-core asset-monetisation plans,” the research house added.

Tags: exports, prices, Production, Malaysia, palm oil, output, consumption, inventory, сrude palm oil