Coronavirus outbreak keeps CPO price on a roller coaster

By FARA AISYAH / Pic By TMR File

CRUDE palm oil (CPO) prices remained volatile as the death toll from coronavirus continued to rise in China, dampening the outlook of one of the commodity’s largest markets.

Death related to coronavirus climbed to over 170, with 7,711 confirmed cases reported — higher than the numbers recorded during the SARS epidemic in 2003.

As at 6pm yesterday, the benchmark CPO contract fell RM65 per tonne to RM2,658 after rising RM148 per tonne to close at RM2,723 on Wednesday.

The Kuala Lumpur Plantation Index also slumped 57.49 points or 0.8% to 7,156.71 yesterday.

FGV Holdings Bhd pushed the index that tracked plantations stocks by 5.84% lower, while Rimbunan Sawit Bhd added another 7.94% decline.

Sime Darby Plantation Bhd, however, mitigated the decline, helping the index to advance 0.2%, while Gopeng Bhd 3.7%.

CGS-CIMB Securities Sdn Bhd head of research Ivy Ng said the decline yesterday was triggered by the heightened fear that coronavirus outbreak in China would impact global CPO demand.

“CPO price fell by 13% during the SARS outbreak, but recovered after concerns subsided. The key difference now is that the CPO price is closely linked to crude oil price.

“We expect the concerns will keep CPO price in check,” she told The Malaysian Reserve.

She said concerns over the coronavirus outbreak and potential impact on demand for CPO would offset fears of supply shortage, keeping CPO price in check in the near term.

Ng said near-term CPO demand will largely depend on Indonesia’s biodiesel mandates and replenishment of edible oil stocks by India.

She said earnings prospects of upstream planters like FGV, First Resources Ltd and Hap Seng Plantations Holdings Bhd would be more sensitive to CPO price volatility compared to integrated planters like IOI Corp Bhd and Kuala Lumpur Kepong Bhd.

Ng said CGS-CIMB Securities maintains its average CPO target price of RM2,300/RM2,400 per tonne for 2020/2021.

The firm also views the recent CPO price correction as an opportunity to accumulate Wilmar International Ltd, First Resources and Genting Plantations Bhd.

Ng said the sharp decline in CPO futures on Tuesday was partly due to its meteoric rise since mid- October at RM2,214 per tonne to RM2,829 per tonne (+28%) on Jan 24, 2020, leaving significant room for profit-taking.

Earlier this month, CPO price hiked to a fresh three-year high at RM3,125 a tonne for the benchmark CPO contract on Bursa Malaysia Derivatives Exchange on positive demand-supply fundamentals.

However, the move by the Indian government to restrict imports of refined CPO from Malaysia had dampened sentiments.

Palm oil shipment to India has dropped almost 50% month-on month in the third week of January, likely due to the restriction measures by the Indian government.

According to data from independent cargo surveyor SGS Malaysia Sdn Bhd, palm oil shipment to India fell 48.7% to 30,050 tonnes during the first 20 days of January compared to December last year.

The shipment in the first 10 days and 15 days dropped 41% and 67.1% respectively to 18,500 tonnes, compared to the exports last month.