Analysts upbeat on 2019 CPO price recovery


The price of crude palm oil (CPO) is expected to recover gradually this year due to the ample global soybean supply arising from the ongoing trade tensions as well as a bumper harvest in the US.

The growth is expected to be gradual this year while a more bullish outlook can be expected in 2020, said JPMorgan Securities (M) Sdn Bhd.

In a research note yesterday, JPMorgan reckoned that price recovery will be aided by the slowing CPO output growth between 2019-2020 from lower yields or replanting exercises in Malaysia and lower new matured areas in Indonesia could help draw down inventories.

“The US-China trade tensions, if unresolved, could possibly see China’s edible oil demand shifting to CPO from soy.

“We forecast CPO prices at RM2,500 per tonne for 2019 and the outlook could turn more bullish by 2020, with soybean supply likely to turn tighter,” the firm noted.

To recap, CPO prices have recovered 18% from their November 2018 low, and JPMorgan expects inventories may gradually drop by January to February 2019. The price reached a low of RM1,773 per tonne last November.

Higher biodiesel demand for Indonesia’s B20 (20% biodiesel blend) programme and improved demand from India after the recent slash in import duty will support prices as well.

The firm said key risk to CPO price is potential setbacks in Indonesia’s B20 programme implementation, besides a weaker US dollar.

“However, its (Indonesia’s) biodiesel fund’s surplus position could help mitigate the impact, in our view,” it said.

“Other key upside risks are the possibility of an El Niño event in 2019, which could disrupt CPO output; any alleviation in the US-China trade tensions, which would be positive for soybean prices; and adverse weather impacting soybean output from the upcoming South American harvest.

“Downside risks would be sharper rise in soybean stocks, rising costs, and a weaker US dollar, which is net negative on core earnings,” JPMorgan said.

Kenanga Research in its recent report said it expects CPO prices to improve as early as the first quarter of 2019 (1Q19).

The research firm said CPO price is expected to improve to between RM2,300 and RM2,400 per tonne by March 2019 and edge up further to RM2,500-RM2,600 per tonne by mid-year.

Kenanga Research also forecast CPO price this year to average RM2,400 per tonne, a 7% increase from the average price in 2018.

Hong Leong Investment Bank Bhd (HLIB), however, believes the price weakness will sustain into the 1Q19, arising from high stockpile and absence of positive demand catalyst, and recovery is possible from the 2Q onwards.

The main factor to the recovery as cited by HLIB was the extension of biodiesel mandates in Malaysia and Indonesia.

“The extension of biodiesel programmes in Malaysia and Indonesia will raise CPO consumption by up to 2.9 million tonnes per annum, and in turn, reduce combined palm oil stockpile of Malaysia and Indonesia by close to 40%,” it said.

CPO price on Bursa Malaysia Derivatives Exchange closed at RM2,195 per tonne yesterday.