Rise in stockpiles likely to cap CPO prices
The sharp rise in palm oil stocks to 1.87 million tonnes in April, the highest in six months, may put a cap on crude palm oil (CPO) prices moving forward, say analysts.
According to Hong Leong Investment Bank (HLIB) Research, the uptrend in palm oil stock level would likely persist in the near term, driven by seasonally higher cropping pattern, subdued festive-driven demand, and weak CPO prices – which imply lower discretionary biodiesel blending activities.
Furthermore, the conflict between India and Pakistan, two of the major importers of palm oil, could dampen demand from these markets if the tension re-escalates, it said in a report yesterday.
On CPO prices, the research house said “we maintain our 2025 to 2026 CPO price assumptions of RM4,000 per tonne and RM3,800 per tonne, with the view that continued output recovery (particularly from Indonesia) will cap palm oil prices over the near to medium term.”
Year-to-date, CPO price has eased by over 20% to RM3,780 per tone due to improving supply prospects, bringing year to date average to RM4,560 per tonne.
HLIB Research has maintained a “neutral” stance on the plantation sector given the absence of a clear demand catalyst.
For exposure, its top “buy” picks are SD Guthrie Bhd with a target price (TP) of RM5.17 a share, Johor Plantations Group Bhd (TP: RM1.35) and IOI Corp Bhd (TP: RM4.24).
CIMB Research, in a report, said the rise in palm oil stocks in April has exceeded both Bloomberg consensus at 1.79 million tonnes and its estimate at 1.68 million tonnes, driven by higher palm oil supply.
Palm oil production surged 21% month-on-month to 1.68 million tonnes, marking the highest April output since 2015.
CIMB Research noted “the higher stockpile and our projection of a higher stockpile of 2.15 million tonnes in May is negative for CPO prices.”
The research house has maintained its CPO price forecast of RM4,200 per tonne for 2025, supported by Indonesia’s biodiesel mandates and limited expansion in palm oil planting areas.
“However, we have revised our sector call to ‘neutral’ from ‘overweight’ following our recent downgrade of SD Guthrie to ‘hold’ from ‘buy’ due to limited near-term catalysts,” added CIMB Research.
TA Research has also maintained a “neutral” stance on the plantation sector with its CPO price forecast for 2025 unchanged at RM3,800 per tonne.
It has reiterated “buy” calls on IOI (TP: RM3.94) and United Malacca Bhd (TP: RM5.58), while maintaining “hold” calls on SD Guthrie (TP: RM4.94), Kuala Lumpur Kepong Bhd (TP: RM20.54), TSH Resources Bhd (TP: RM1.14) and Kim Loong Resources Bhd (TP: RM2.31) respectively.
The key downside risks to its sector recommendation include South America’s soybean supply turns out to be lower –than-market expectations, a more promising demand recovery story, lower-than-expected palm oil production and significant reductions in production costs.
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