09.04.2019 (New Straits Times Online) - KUALA LUMPUR: The inclusion of palm oil purchase by China in the East Coast Rail Link (ECRL) potential revival deal is positive as it could allow Malaysia to potentially lock in higher palm oil export volumes to the republic over the next few years, said CIMB Research.
The research firm said if the deal involves higher palm oil sales volumes from Malaysia to China compared to 2018’s 1.87 million tonnes, it would help boost Malaysia’s crude palm oil (CPO) price via the drawdown of stocks.
“If the commitments involve China using more palm oil at the expense of other edible oils, it would be overall positive for CPO prices due to higher global demand for palm oil,” it said in a note.
However, CIMB Research said if the deal results in China maintaining its palm oil usage but increasing its share of palm oil purchases from Malaysia, it could potentially help widen the CPO price premium gap between Malaysia and Indonesian CPO prices.
In the event the ECRL talks lead to higher CPO price, CIMB Research said it will be positive for upstream planters and Malaysia’s current account surplus.
The higher CPO prices would help boost plantation earnings and/or defray costs from higher minimum wage, it added.
“Our economist estimates that every five per cent increase in palm oil export volumes, assuming palm oil prices remain constant, could raise Malaysia’s current account surplus by RM2 billion or 0.14 per cent of gross domestic product,” CIMB Research said.
“We are keeping our 2019 average CPO price forecast of RM2,400 per tonne intact and Neutral rating on sector.”
According to a daily news report, the current renegotiation on the ECRL could see its construction price pegged at RM50 million to RM60 million per km, as well as a commitment by the Chinese government to buy Malaysian palm oil and bring in projects.