Plantation sector experts concerned over May CPO exports

KUALA LUMPUR (April 15): Plantation experts are concerned over crude palm oil (CPO) exports from May onwards, as many nations are still battling against the COVID-19 pandemic, with no vaccine in sight to date.

In a bid to curb the spread of the virus, people are practicing social distancing, resulting in the shutting down or scaling down of businesses, including those in the food and consumer goods industry that buy Malaysian palm oil.

The lower palm oil demand weakened CPO prices to RM2,200-RM2,300 per tonne from the RM3,000 per tonne level in January.

Even the 0.5 per cent reduction in export duty to 4.5 per cent for May is unlikely to boost palm oil export, plantation analysts said.

Malaysian Palm Oil Board director-general Dr Ahmad Parveez Ghulam Kadir said that the export performance is not dependent on CPO export duty.

“Our current concern in terms of exports is the impact of the COVID-19 pandemic on palm oil demand among importing countries.

“If this pandemic leads to a prolonged lockdown or movement control order (MCO) in the importing countries, it may result in lower palm oil consumption, thus affecting palm oil exports,” he said to Bernama.

Ahmad Parveez said the 0.5 per cent cut in export duty would not boost exports since 80 per cent of palm oil exports are in the form of processed palm oil, which is not subjected to export duty.

Other factors which also contribute to palm oil exports include price competitiveness among producing countries and competing oils, as well as availability of palm oil and domestic oils/fats in the importing countries.

Alliance DBS however remained optimistic, forecasting an export growth in the next couple of months for the commodity, with constant demand coming from China and India — countries with the world’s largest populations — simply due to the mass production of food and essentials such as instant noodles, cooking oil and soap.

“The export growth in the next couple of months — especially to India and China — will be the key development to monitor, which can underline the resilience of CPO demand in the face of the virus outbreak while keeping the stockpile stable. 

 “We assume that the partial lockdown in Malaysia, especially in Sabah, will not have any impact on CPO output,” the research house said.

Alliance DBS also anticipated CPO exports to improve, led by demand from the European Union (EU) and Pakistan.

Exports to the EU rebounded 29 per cent month-on-month (m-o-m) in March 2020 to 195,300 tonnes while exports to Pakistan rebounded 43 per cent m-o-m to 67,000 tonnes.

This helped to partially offset the lower exports to India, which fell by 97 per cent m-o-m to 10,800 tonnes, as well as to China, which declined by 14 per cent m-o-m to 148,000 tonnes.

The research house said while it will closely track the COVID-19 situation and Indonesia’s biodiesel programme, it is optimistic that the supply-demand situation in Malaysia would still be better than 2019.

Meanwhile, on the performance of the plantation counters on Bursa Malaysia, it said that the companies have yet to fully recover from the recent bout of COVID-19-induced panic selling.

“We like planters with good underlying plantation assets (as measured by their CPO yield per hectare and margin metrics), as they can better withstand CPO price fluctuations moving ahead.

“We have upgraded Sime Darby to a “buy”, joining the trio of FGV, KLK and TSH,” it said.

At yesterday’s close, Sime Darby Plantation’s shares jumped 1.03 per cent to RM4.91, FGV soared 4.82 per cent to 87 sen, KLK rose 0.19 per cent to RM20.80 and TSH was 2.40 per cent higher at 64 sen.

Alliance DBS expects the CPO price to stay at RM2,450 per tonne for this year, an opinion which is shared by MIDF Research.

On the inventory level, MIDF Research expects the plantation sector to remain under pressure as demand loss due to COVID-19 lockdowns in major export markets and the India-Malaysia trade spat might outpace production level.

“There is also concern that the palm oil-based biofuel is losing its appeal in view of the subdued crude oil price. Nonetheless, we do not expect a drastic decline in CPO price towards the RM2,000 per tonne level.

“Additionally, the restocking activities ahead of the month of Ramadan and the possible gradual recovery of economic activities in China could partially support export demand,” it said.

Palm oil stocks in March 2020 rose by 1.7 per cent m-o-m to 1.73 million tonnes, due to higher CPO production and palm oil imports, and many sectors in the palm oil industry have been allowed to resume operation during the MCO period.

Source : The Edge Markets

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