CPO price to stay high till June, says HLIB

HLIB analyst Chye Wen Fei said Indonesia’s expansion of its export permit for palm oil products including derivatives (effective from Feb 15, 2022), could disrupt palm oil supply chain. 
HLIB analyst Chye Wen Fei said Indonesia’s expansion of its export permit for palm oil products including derivatives (effective from Feb 15, 2022), could disrupt palm oil supply chain. 

KUALA LUMPUR: Crude palm oil (CPO) price will likely remain at elevated levels until the first half (1H) of this year, according to Hong Leong Investment Bank Bhd (HLIB).

This will be supported by weaker production outlook for corn and soybean in South America and Indonesian government’s recent move to expand its export permit requirement for all palm oil products.

HLIB analyst Chye Wen Fei said Indonesia’s expansion of its export permit for palm oil products including derivatives (effective from Feb 15, 2022), could disrupt palm oil supply chain. 

“While we continue to believe that a pullback in CPO price will materialise when palm oil output recovers, this hinges on several uncertainties,” he said in a research note today.

Beyond 1H of 2022, Chye said recovery of vegetable oils hinged on several uncertainties including the entrant of foreign workers into Malaysian shores and surging fertiliser prices, which may result in planters (in particular smallholders) reducing fertiliser application to oil palms.

“Hence, this could derail the anticipated yield recovery,” he added.

Chye said environmental, social and governance (ESG) concerns on the plantation sector might hit rock bottom and should ease soon. 

Sime Darby Plantation Bhd had recently announced several changes and improvements to its governance structures, policies and procedures. 

These included reimbursing recruitment fees to its current and past foreign workers (totalling RM82 million), establishment of an improved responsible recruitment procedure and the implementation of new processes to enable better dialogue with workers. 

“We are positive on the latest development, as it demonstrates Sime Darby Plantation’s proactive measures to resolve the US Customs and Border Protection (CBP) ban issues.

“The US CBP has also engaged with Malaysian government and industries regarding the forced labour allegations and will step up discussions to address the issues.

“We believe this should pave the way to lay forced labour allegations to rest,” he said.

HLIB has raised 2022 CPO price forecast to RM4,300 per tonne from RM3,500 per tonne in anticipation of the tight supply situation of vegetable oils (including palm oil), which will continue to lend support to CPO price for the next few months. 

“For 2023-2024, we raise our CPO price forecast to RM3,300 per tonne from RM2,900 per tonne, as we believe a recovery to palm oil production will take longer than expected,” he said.

HLIB has maintained earnings forecasts and remained overweight on the sector, underpinned by high near-term CPO prices, which will in turn translate to good near term earnings prospects, easing ESG concerns and decent valuations. 

Its top pick include IOI Corp Bhd with a target price at RM4.35, Kuala Lumpur Kepong Bhd at RM25.33 and Sime Darby Plantation at RM4.48.

Source : NST

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