New Straits Times (29/07/2020) KUALA LUMPUR: Kenanga Research is unconvinced that the price of crude palm oil (CPO) will keep going this year as the low stock situation is going to be temporary.
"Channel checks with planters reveal that the recent higher rainfall is of no cause for concern. While there are some crop losses due to flooding, the impact is minimal.
"Inventory levels should pick up as production enters peak season. Most planters are of the view that a second peak would occur in September-October," it said in a note today.
Kenanga Research said besides that, soybean oil-palm oil spread had turned negative at -RM12 per tonne, indicating that CPO had lost its competitive edge against soybean, and widening palm oil-gas oil spread of RM295 per tonne, which could again challenge biodiesel demand.
It said a steep inverted CPO forward curve can be observed, implying about RM313 per tonne downside in the next five to six months.
This is despite an impressive recovery in production in the second quarter (Q2) of the year.
After two quarters of consecutive sequential CPO production decline in Q4 2019 of 14 per cent quarter-on-quarter (q-o-q) and Q1 2020 (-17 per cent q-o-q), Q2 production staged a recovery of 35 per cent q-o-q.
Kenanga Research said the main beneficiaries would be planters with high concentration of production in Peninsular and Sabah such as FGV Holdings Bhd, Hap Seng Plantations Holdings Bhd, IOI Corp Bhd and United Malacca Bhd.
It said this should provide a reprieve to lower CPO price.
Having said that, it said spot price for CPO was now RM2,835 per tonne, up 40 per cent from lows of RM2,023 per tonne in May 2020.
"This could be attributed to concerns of lower production due to recent heavy rainfall, and an expected decline (estimated 15-20 per cent) in stock levels for July," it said.
Kenanga Research maintained its "neutral" call on the sector with 2020 CPO price forecast of RM2,300 per tonne.
"For investors that must have exposure in the sector, we recommend Hap Seng, a laggard play — trading at a more palatable -0.75 standard deviation (SD) valuation level, versus peers' mean to +0.5 SD," it said.
Read more at https://www.nst.com.my/business/2020/07/612461/cpo-price-not-likely-keep-going