Borneo Post Online (06/10/2020) - KUCHING: Analysts are still cautious on the sustainability of crude palm oil (CPO) prices, having reached a high of RM3,100 per metric tonne (MT) in mid-September 2020, from the year-to-date low of RM2,000 per MT in May 2020 and the highest level since January 2020, but now are settling lower at circa RM2,850 per MT.
Affin Hwang Investment Bank Bhd (AffinHwang Capital) said the higher prices since May 2020 are partly attributable to the increase in demand for palm-oil products, lower global production of palm oil, an increase in other vegetable oil prices and weather uncertainties, in its view.
“Overall, given that the Covid-19 pandemic is still evolving globally, uncertainties remain in the market and with concerns over a potential rise in tock levels at producing countries, we are cautious on the outlook for the fourth quarter of 2020.
“Some countries are facing more stringent lockdowns due to the second wave of the Covid-19 pandemic and this could again slow down edible oil demand.
“We continue to caution that there could potentially be a pullback in CPO prices from the current level on expectations of strong production coming in for the next one to three months as we enter the peak production period.
“While we think that current CPO prices will unlikely to sustain, we believe the average selling prices for 2020 to 2021E will be higher at RM2,500 to RM2,550 per MT against our previous assumption of RM2,350 to RM2,450.”
Separately, Kenanga Investment Bank Bhd (Kenanga Research) continue to believe that there is upside risk to Malaysian Palm Oil Board’s (MPOB) CPO production estimate for 2020, which is at 19 million MT.
“While CPO production is still down year to date up to August 2020, the decline has narrowed from 13 per cent year on year.
“MPOB’s 19 million MT production estimate implies an average CPO production of 1.57 million MT for the remaining four months, which is the five-year low. Based on data from Southern Peninsular Palm Oil Millers Association, CPO production for Sep-2020 was slightly lower month-on-month.
“As such, we are sticking to our 2020 CPO production estimate of 19.5 million MT, which implies an average CPO production of 1.70m MT, closer to the five-year average of 1.75 million MT.”
Meanwhile, Kenanga Research said exports have risen, but winter is coming. Data from cargo surveyors Intertek for September 2020 revealed a 7.4 per cent month on month improvement in exports, from a decline in August, attributable to India and European Union.
“However, we caution that demand is expected to normalise post-festive season and as we approach the winter season,” it continued. “Typically, palm oil buyers switch to soybean oil during winter (December to March) given palm oil’s high solidification point of 35 degrees Celcius versus soybean oil’s minus 18 to minus eight degrees Celcius.
“Additionally, demand disruption from a COVID-19 second-wave lockdown remains an undeniable risk. We refer to our key export markets, India and EU in particular – which collectively accounts for 23 per cent of Malaysia’s total palm oil exports.”
Read more at https://www.theborneopost.com/2020/10/06/still-cautious-on-cpo-price-volatility/