CPO price outlook remains robust given production decline is expected to continue into 2020 from the dry weather impact, lower fertiliser application as well as lower replanting, sturdy demand on top of the implementation of biodiesel mandates and significant earnings improvement ahead from higher CPO prices. — AFP photo
KUCHING: The crude palm oil (CPO) price outlook remains robust, analysts project, as they revise their estimates upwards for current year 2020 (CY20).
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) revised up its CY20 CPO price forecast, from RM2,400 per metric tonne (MT) to RM2,700 per MT.
“For the first half of CY20 (1HCY20), we believe CPO price should trade around the range of RM2,700 to RM3,100 per MT and average RM2,700 per MT for CY20,” Kenanga Research said in its plantation sector update.
According to Kenanga Research, this was supported by continuous CPO production decline, robust demand from biodiesel mandates and widening soybean oil-crude palm oil (SBO-CPO) premium of US$48 per MT, versus month to date (MTD) average of US$37 per MT.
Post-CPO price revision, the research arm upgraded planters’ earnings on average for FY20 by 60 per cent (coming from a low base).
“All in, we believe that CPO price outlook remains robust given production decline is expected to continue into 2020 from the dry weather impact, lower fertiliser application as well as lower replanting, sturdy demand on top of the implementation of biodiesel mandates (B30 Indonesia; B20/B10 Malaysia for transport/industrial) and significant earnings improvement ahead from higher CPO prices.”
Looking ahead, Kenanga Research believed that the worst is over for the plantation sector.
This was due to demand-supply dynamics for CPO being in favour for price upside due to tight supply (arising from production decline) as well as growing demand (from biodiesel).
It also noted that planters are expected to register significant sequential earnings improvement on the back of higher CPO prices (up 23 per cent quarter to date), after the recent fourth quarter of CY19 (4QCY19) earnings disappointment.