KUCHING: Palm oil is regaining its competitiveness level against soybean oil and it will likely win global market share of vegetable oils going forward, analysts say.
In a report, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) highlighted that from the recent low discount of US$54 per metric tonne (MT), crude palm oil (CPO) to soybean oil discount has more than doubled to US$114 per MT currently.
“The current discount is higher than the one-year average of US$98 per MT and is now at 0.5 Standard Deviation (SD) above the one-year mean.
“Hence, we believe that palm oil has regained its competitiveness level and should win global market share of vegetable oils going forward,” the research team opined.
It also pointed out that there are headwinds in the soybean sector as according to Oil World, world soybean plantings are unlikely to increase in 2016 to 2017.
“We gather that North America plantings will be unchanged or up marginally while South America plantings will also be unchanged or slightly down.
“It is estimated that Argentina planting should drop by 0.9 million MT while Brazil acreage should only expand by only 0.5 million hectare.
“The news is positive to CPO price as this should lead to higher price of soybean oil (due to lower supply of soybean),” it said.
Nevertheless, MIDF Research also noted that demand for palm oil has been weaker than expected recently. It expect palm oil stockpile to increase in June 2016 and as such it revised its end-June inventory forecast to 1.83 million MT (from 1.65 million MT).
“Note that palm oil exports has declined 10 per cent month-on-month (m-o-m) in June based on cargo surveyors data.
“Despite the revision in our inventory forecast, the ending stocks level is still below the psychological threshold of two million MT and hence be supportive to CPO price,” it added.
Meanwhile, on the impact of Brexit on the palm oil sector, the research team viewed that the current currency fluctuations caused by the Brexit is positive on CPO prices.
“We noticed that US dollar/ringgit rate has increased after the unexpected news of Brexit as global investors adopt the ‘flight to safety’ mentality.
“The higher US dollar/ringgit rate improves CPO competitiveness against soybean oil (which is priced in US dollar) as CPO price (when translated to US dollar) will be lower,” it noted.
Overall, MIDF Research maintained a positive view on the sector. It also maintained its average CPO price assumption of RM2,450 per MT (RM2,512 per MT year to date) for the year 2016 which is 14 per cent higher than 2015 average of RM2,153.50 per
MT.