PETALING JAYA: Plantation analysts are revising upward their crude palm oil (CPO) average price forecasts to above RM4,000 per tonne for this 12 months, from their earlier projections between the RM3,100 and RM3,400 per tonne ranges.
This is following a confluence of things, which have pushed CPO costs to historic report ranges in latest weeks.
The CPO spot price is buying and selling above the RM6,000 per tonne mark whereas the third month benchmark CPO futures contract closed firmer at RM5,530 per tonne final Friday.
Even the KL Plantation Index, the index that tracks plantation firms on Bursa Malaysia has dash up by virtually 20% year-to-date on bullish fundamentals.
Maybank Investment Bank (Maybank IB) Research has raised its average CPO price to RM4,100 per tonne for 2022, whereas each Hong Leong Investment Bank Research (HLIB) and RHB Research have revised their projections greater at RM4,300 per tonne respectively.
Maybank IB famous that “overall, following the good start to the year, we now raise our CPO ASP forecasts.
“Our earnings, calls and target prices (TPs) for listed planters under our coverage will be reviewed during the upcoming results season,” it mentioned in its newest report.
While the current excessive costs is not going to prone to maintain, Maybank IB anticipated that CPO costs will keep lofty within the instant time period.
It mentioned the trade is in its seasonally low manufacturing cycle, thus limiting accessible provide.
However, the trade output is prone to decide up from the second quarter of economic 12 months 2022 onwards.
Maybank IB mentioned elements driving the present report CPO costs embody the tight provide scenario, rising price pressures from greater fertiliser costs, labour scarcity in Malaysia and Indonesia’s newest palm oil export coverage. HLIB Research in the meantime mentioned the CPO costs will seemingly stay at elevated ranges probably till the primary half of 2022.
This is supported by weaker manufacturing outlook for corn and soybean in South America and Indonesian authorities’s latest transfer to develop its export allow requirement for all palm oil merchandise, which is able to seemingly disrupt palm oil provide chain.
“While we continue to believe that a pullback in CPO price will materialise when palm oil output recovers, this hinges on several uncertainties,” the analysis home mentioned in its newest report.
Furthermore, the environmental, social and governance (ESG) issues on the sector could have hit all-time low and will ease quickly, it added.
HLIB Research additionally famous that the earnings forecasts and TPs on particular person planters to mirror excessive CPO price and manufacturing price assumptions might be adjusted within the upcoming outcomes season. For now, it has maintained an “overweight” name on the sector with its high picks as IOI Corp Bhd
, Kuala Lumpur Kepong Bhd and Sime Darby Plantation Bhd.
RHB Research famous that “Despite our increase in CPO price assumptions, we believe valuations are likely to remain dampened by ESG issues, while earnings per tonne could actually be lower year-on-year, based on the current tax and costing dynamics.”
“We also recommend a profit taking strategy, barring any unforeseen circumstances, we continue to expect prices to moderate in the second half of 2022.”
With the CPO price at RM5,500 per tonne, RHB Research expects that Sabah and Sarawak planters would realise costs of RM4,657.50 per tonne, whereas East Malaysian planters would realise RM4,732.50 per tonne.
In Malaysia, the windfall taxes primarily based on a CPO price of RM5,500 is RM375 per tonne in West Malaysia and RM300 per tonne in East Malaysia.
The analysis home, which maintained an underweight name on the sector, mentioned CPO costs have risen of late, on the again of intensive hypothesis within the futures market.
Concerns spike in regards to the Russia-Ukraine tensions having an impression on crop output, rippling impact from rising power costs and lingering issues in regards to the impression of La Nina on South American crops. “The Russia-Ukraine tensions is a black swan event we had not accounted for,” the analysis home added.
