Logo of Phnom Penh Post newspaper Phnom Penh Post - Malaysia crude palm oil prices to remain high near-term

Malaysia crude palm oil prices to remain high near-term

Content image - Phnom Penh Post
HLIB Research maintained its ‘overweight’ stance on the Malaysian palm oil sector, underpinned by good near term earnings prospects and commendable valuations. AFP

Malaysia crude palm oil prices to remain high near-term

Malaysia's crude palm oil (CPO) prices are expected to remain elevated in the near term, supported by the La Nina phenomenon, which will likely result in delay in soybean planting in South America and seasonally lower production cycle, according to Hong Leong Investment Bank (HLIB) Research.

The research house added that for this month, slower exports to China (as winter season typically slows palm oil demand from China) and India (on the back of high prices) will be mitigated by seasonally lower palm production cycle (exacerbated by the onset of La Nina and labour shortfall).

HLIB Research maintained its 2022 to 2023 CPO price assumptions at 3,500 to 2,900 ringgit ($837 to $693) per tonne.

The research unit noted that exports fell 3.5 per cent month-on-month to 1.41 million tonnes in December, dragged mainly by lower exports to China, India and Pakistan, but was partly mitigated by higher exports to the EU.

“While we still hold the view that CPO prices will start trending down from the second quarter of 2022 – this hinges on several uncertainties, including the entry of foreign workers into Malaysian shores, which could be delayed, as the recent Omicron variant has resulted in the government tightening the existing standard operating procedures [SOP]; and surging fertiliser prices, which may result in planters [in particular smallholders] reducing fertiliser application to oil palms, hence derailing the anticipated yield recovery,” said HLIB Research.

HLIB Research maintained its “overweight” stance on the sector, underpinned by good near-term earnings prospects (arising from high CPO prices) and commendable valuations.

Maybank Investment Bank (IB) Research also noted that CPO prices are off to a good start this year due to weather risk in this region as well as South America.

“High fertiliser prices, disrupted fertiliser supplies and labour shortage in Malaysia may possibly cause palm oil yields to again come in below expectation in 2022,” said Maybank IB Research.

The research unit also reckoned that Malaysia’s export competitiveness to India has been eroded since late last month as India cut the basic import tax on refined palm oil to 12.5 per cent from 17.5 per cent until March, and extended unrestricted import of refined palm oil until December 2022 (from last month).

“We view these recent policy changes to favour Indonesia’s refiners over Malaysian refiners,” said the research unit.

Maybank IB Research also pointed out that the weather risk in South America, especially in the southern part of Brazil (the world’s largest soybean producing country) and Argentina (third largest after the US), is slowly being reflected in industry estimates due to unfavourable weather there.

Meanwhile, Kenanga Research is expecting January 2022 production to just more or less meet exports with imports needed to meet domestic consumption.

“Some drawdown of December inventory is also anticipated hence end-January 2022 inventory is expected shrink by about nine per cent month-on-month,” said Kenanga Research, adding that a labour shortfall is to set to continue constraining the sector in the first half of this year.

The research unit said guest workers are expected to only start trickling in after the second quarter of the year.

According to Kenanga Research, palm oil fundamentals over the next month or two suggest little room for bad news, be it unexpected labour shortages, poor weather or negative news from rival oil and fat complexes.

The prevailing key factors are the speed of foreign workers intake to address the labour situation, Chinese and Indian demand, environmental, social and governance (ESG) developments, and supply-demand dynamics of other edible oils.

Kenanga Research maintained its “neutral” rating on the plantation sector as supply should progressively ease current tightness in the global oils and fats market.

THE STAR (MALAYSIA)/ASIA NEWS NETWORK

MOST VIEWED

  • Massive stingrays may live in Mekong’s deep pools

    US scientists have suggested that unexplored deep pools in the Mekong River in an area of Stung Treng could potentially be home to significant populations of giant freshwater stingrays, one of the world’s largest freshwater fish species. This comes as a fisherman hooked a 180

  • PM takes time to meet, greet Cambodians living in the US

    After landing in the US ahead of the ASEAN-US Special Summit, Prime Minister Hun Sen was received by over 1,000 Cambodian-Americans including political analysts who welcomed him with greetings, fist bumps and selfies. Hun Sen also met with analyst Mak Hoeun, who had allegedly spoken ill

  • PM heads to Washington for ASEAN-US special summit

    Regional and international issues and how to bring the ASEAN-US partnership to another level will be discussed at length as Prime Minister Hun Sen and his ministers arrive in Washington, DC, for a special summit on May 12-13. During the trip, Hun Sen and ASEAN

  • National Assembly refutes EU resolution

    The National Assembly (NA) has hit back at a European Parliament resolution condemning the political and human rights situation in Cambodia, calling it another display of the Parliament’s “double standards”. Key points of the resolution include a warning that the Parliament could exclude the

  • Soaring global fuel prices: an opportunity for Cambodia?

    Cambodia is feeling the squeeze from the soaring global coal and oil prices. Electricity du Cambodge (EDC)would certainly be hurting from this reality, and most likely re-assessing its plans to add more coal power stations. EDC buys half of Cambodia’s electricity from plants

  • PM reflects on shoe throwing: Free speech or act of violence?

    Prime Minister Hun Sen on May 17 questioned whether a man who threw a shoe at him while he was in the US was exercising freedom of expression or if it was an act of hostility. Hun Sen was referring to an incident last week when