Research Firms Expect Higher CPO Prices

KUALA LUMPUR: Research firms expect the crude palm oil (CPO) prices to strengthen in the first half of 2014 amid prolonged dry weather in the palm oil-producing countries and Indonesia’s biodiesel programme.

RHB Research expected the CPO prices to strengthen progressively throughout the second quarter to RM2,700 per tonne due to lacklustre output in Indonesia, a result of rainfall deficit.

“We concede that if Indonesia’s biodiesel programme is the sole price-driver, palm oil’s price rally would probably stall at RM2,850,” it said in a note today.

It said there were other bullish factors at play which could push the prices beyond that level, pointing to the extraordinary dry spell in parts of Malaysia and Indonesia and the probability of it worsening to become full-fledged El Nino phenomenon. 

“We believe it is still the early stage of a bull market as funds have just started to flow into the palm oil sector and valuations remain inexpensive,” it said.

RHB Research has maintained its ‘overweight’ call on the plantation sector.

MIDF Research said slower growth in the fresh fruit bunch (FFB) production would cap the inventory level below two million metric tonnes and in turn help CPO prices to sustain at the current level for at least two to three months ahead.

Year-to-date, CPO price had averaged RM2,649 per metric tonne, 9.3 per cent higher compared with the average CPO price in the same period last year, it said.

“With the expectation of low inventory level, slower FFB production growth in Malaysia and higher CPO offtake on the growing biodiesel demand, we reiterate our positive view on the plantation sector with average CPO price forecast of RM2,700 per metric tonne,” it said.

MIDF Research said a prolonged hot and dry condition would adversely affect moisture content in the palm fruit and consequently lead to lower CPO output. Malaysia’s palm oil stocks of 1.66 million metric tonnes in February 2014 were significantly below market expectation of 1.80 million metric tonnes.

Kenanga Research said CPO prices would surge above RM3,000 to hit RM3,200 by end-June if the dry season extended beyond March.

“This is due to our expectation that CPO production will come in below current market expectation causing inventory to be depleted significantly to aseven-year low level of 2.15 million metric tonnes by June 2014 if El Nino hits,” it said.

Looking ahead, the research firm expected March 2014 inventory to decline further by eight per cent to 1.52 million metric tonnes.– Bernama

Source :  New Straits Times 

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