KUALA LUMPUR (Jan 4): Malaysia’s crude palm oil (CPO) spot price averaged at RM5,171 in fourth quarter of 2021 (4Q21), an increase of 53% year-on-year (y-o-y) or an improvement of 17% quarter-on-quarter (q-o-q), said an analyst.
In a research note, Maybank Investment Bank (Maybank IB) Research analyst Ong Chee Ting said the recent high prices were in part supported by fear of supply disruption due to sporadic floods across Malaysia.
“We estimate Malaysia’s December 2021 CPO output at 1.45 million tonnes or edged down 11% month-on-month (m-o-m), bringing 2021’s output to 18.1 million tonnes or a decrease of 5% y-o-y.
“With record prices, we expect growers to deliver another set of sterling results in 4Q21,” he said.
Ong said the Bursa Malaysia Derivatives futures CPO (FCPO) price curves trended higher q-o-q since March 2020 — this was broadly in line with US Futures soybean oil price curves except soybean oil curves moderated during the past two quarters.
“Presently, the FCPO is in a steep backwardation with 12 months FCFO at more than RM1,000 per tonne discount to 1M FCPO of RM5,159 per tonne — as at Dec 31, 2021,” he said.
The analyst said in comparison, the futures soybean oil price curves have been relatively flattish compared to FCPO.
“FCPO prices were higher in the near months to reflect the anticipated tightness in supply as the industry enters into seasonally low production months in 1Q22.
“While 1M FCPO is near parity to 1M soybean oil, 6M-13M CPO prices are priced at attractive discounts of more than US$200 per tonne.
“Overall, for 2021, CPO spot price averaged RM4,430 per tonne or improved 59 per cent YoY,” he said, adding that the bank has estimated Malaysian Palm Oil Board’s December 2021 stockpile to be below November 2021’s 1.82 million tonnes.
He noted that La Nina and Northeast Monsoon have been bringing above normal rainfall that has led to sporadic floods in several states in Malaysia since early December.
Parts of Selangor, Pahang, Melaka, Negeri Sembilan, Johor, Terengganu, Kelantan, and Sabah were affected and estate operations were disrupted for several days in the affected areas, he added.
“We understand yield losses have been manageable thus far; compensated by high CPO prices.
“However, the sector is still not out of the woods as the current rainy season is forecast to last till March 2022 — any subsequent wave of floods or any prolonged floods could severely damage the infrastructures and further disrupt operations,” he said.
Record high CPO and palm kernel increased 87% y-o-y or improved 52% q-o-q, with average selling prices boosting growers’ 4Q21 earnings prospects — higher prices should more than compensate for the anticipated weakness in the country’s q-o-q output.
“Due to the heavy rainfall and logistical challenges in securing sufficient fertiliser, we suspect growers have little opportunity to administer the desired fertiliser requirements in 4Q21, further augmenting bottom line as production costs will likely be under control.
“Purer upstream growers with substantial operations in Malaysia, and those with little-to-no forward sales will continue to do relatively better than peers in 4Q21,” said the analyst.
Source : The Edge Markets