Despite the recent optimism, HLIB Research maintained its average CPO price projections of RM2,350 to RM2,400 per metric tonne in 2020-2021, as current CPO price may not sustain into the next few months. — AFP photo
KUCHING: Analysts predict that the current crude palm oil (CPO) price may not sustain its upward trend into the coming months due to heightened concerns on Covid-19 resurgence, among other reasons.
The research arm of Hong Leong Investment Bank Bhd (HLIB Research) recapped that palm oil inventory eased further, by 6.3 per cent month on month (m-o-m), to 1.9 million tonnes in June 220, due mainly to higher exports.
“The stockpile came in slightly below Bloomberg consensus median estimate of 1.91 million tonnes,” HLIB Research said in its plantation sector update.
According to HLIB Research, exports increased for the fourth consecutive month, by 24.9 per cent m-o-m to 1.71 million tonnes, helped by higher exports to China (up 55.6 per cent), India (up 347.7 per cent), and Pakistan (up 35.5 per cent).
“India has been importing more palm oil from Malaysia since April 2020 (albeit from a low base impact), due to improved business ties between India and Malaysia and its dwindling vegetable oil stockpile, we believe.
“On a cumulative basis, exports fell 16.8 per cent to 7.8 million tonnes in the first half of 2020 (1H20), due mainly to Covid-19 pandemic and trade spat with India, which have in turn resulted in lower exports to China and India, particularly in the first quarter of 2020 (1Q20).
“To note, exports to China and India declined by 53.9 per cent in 1H20.”
On total output, HLIB Research recalled that it increased by 14.2 per cent m-o-m to 1.89 million tonnes in June 2020, boosted mainly by a 24.5 per cent m-o-m increase in Peninsular region’s output (led mainly by Johor, Pahang, Perak and Terengganu states).
According to the research arm, on a cumulative basis, total output declined by 7.5 per cent to 9.05 million tonnes in 1H20, dragged by weak output in 1Q20 (as a result of lagged impact arising from dry weather experienced in early-2019 and cutback in fertilisers earlier).
“Despite the recent optimism, we maintain our average CPO price projections of RM2,350 to RM2,400 per metric tonne in 2020-2021, as current CPO price may not sustain into the next few months.”
HLIB Research explained that this was due to heightened concerns on Covid-19 resurgence, demand recovery from China may not be as strong as pre Covid-19’s level on the back of the gradual recovery in China’s hog production, narrower price gap between CPO and soy oil, and feasibility of discretionary biodiesel blending remains inexistent.
All in all, HLIB Research kept its ‘neutral’ stance on the sector unchanged, as the research arm believed recent positive news flows have already been reflected in its assumptions.