The adverse effects on CPO price from US-China trade war have far outweighed the larger-than-expected decline in stockpiles, analysts continue to observe on the plantation sector. — Reuters photo
KUCHING: The adverse effects on crude palm oil (CPO) price from US-China trade war have far outweighed the larger-than-expected decline in stockpiles, analysts continue to observe on the plantation sector.
As per the Malaysian Palm Oil Board’s latest statistics, production of CPO for April 2019 amounted to 1.65 million tonnes, down from 1.56 million tonnes in the corresponding month of the previous year.
The closing stock of palm oil inventory totalled 2.73 million tonnes at the end of the month, up from 2.19 million tonnes in April 2018. However, on a month on month basis, it was a decline from 2.92 million tonnes in March 2019.
“The lower inventory level was primarily owing to the higher export demand ahead of Ramadan season and tapering output level amid the historically low seasonal output period,” the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) observed.
“However, on a year-on-year (y-o-y) basis, we view that the current inventory level remains elevated as the April ending stock was still higher by 25.1 per cent y-o-y.
“This is mainly due to both April 2019 and the first four months of current year 2019 (4M19) output increasing by 5.8 per cent y-o-y and 8.9 per cent y-o-y respectively and higher inventory carried forward.
Nonetheless, MIDF Research opined this was a slight relief to the oversupply conundrum but was not enough to mitigate the downward pressure on CPO price caused by the heightened trade tension.
“While the April inventory level has shown some encouraging signs, we continue to observe that the adverse effects on CPO price from US-China trade war have far outweighed the larger-than-expected decline in stockpiles.
“As the plunge in price of its close substitute, soybean to near decade low amid rising concerns of a global soybean glut continues to exert greater downward pressure on the price of palm oil.”
In addition, the research arm opined that the tapering demand from the European Union (EU) and discounted pricing of Indonesia palm oil could be dampening factors to CPO price as well.
“Fortunately, the strengthening of bilateral ties with China, Ramadan season and higher domestic consumption for biodiesel are optimistic developments which partially supporting the CPO price.”
Moving forward, MIDF Research viewed that in order to expect a rebound in the CPO price, a conclusion on trade agreement between US and China is necessary along with a sustained CPO export demand.
All in, the research arm left its 2019 CPO price target of RM2,280 per metric tonne (mt) for 2019 unchanged.
Meanwhile, the research team at Affin Hwang Investment Bank Bhd (Affin Hwang Capital) still expected the global palm oil inventory to decline gradually with higher exports and higher consumption of palm-oil products.
“Stronger exports and consumption will likely be supported by the energy market and food industries, in our view,” Affin Hwang Capital noted.
“However, if the inventory level of edible oils continues to stay high due to higher-than-expected production as well as the continued weakness in market sentiment, there is a chance that our CPO average selling price (ASP) forecast of RM2,400 per MT for 2019E would be at risk.”