7 Mar 2019 (The Edge Markets MY) KUALA LUMPUR : Hong Leong Investment Bank Research (HLIB Research) has downgraded its rating on the plantation sector to 'underweight', from 'neutral', following a subdued crude palm oil (CPO) price outlook for 2019.
In a note today, HLIB Research analyst Chye Wen Fei said speakers at the Palm and Lauric Oils Price Outlook Conference & Exhibition 2019 yesterday shared their subdued CPO price outlook at the event, with CPO price forecast ranging from RM1,950/mt to RM2,450/mt.
It was said that higher biodiesel blending mandates in Malaysia and Indonesia, and lower soybean crushing activities are the key factors to support palm oil prices, and higher palm oil inventory level being the key factor to cap palm oil prices.
However, HLIB Research maintained its CPO price assumptions of RM2,300/mt for 2019 and RM2,400/mt for 2020.
"Our in-house average CPO price projection of RM2,300/mt in 2019 falls under the range of the experts' views," Chye said.
Meanwhile, world palm oil production growth is expected to slow in 2019, following a production growth of 6% in 2018.
"Thomas Mielke (one of the key presenters) highlighted that palm oil is losing its competitiveness to other competing vegetable oils (in particular, soybeans, rapeseed and sunflower seed) due to lack of replanting activities, rising labour cost, lower acreage growth (relative to soybean), and lower fertiliser application (when palm oil prices were low in 2018), which will in turn have an impact on palm productivity over the longer term," Chye wrote in her note today.
Three plantation stocks under HLIB Research's coverage were downgraded including CB Industrial Product Holding Bhd (from buy to hold), FGV Holdings Bhd (from hold to sell), and IOI Corp Bhd (from hold to sell) during Feb 19 results reporting quarter.