Moody’s revises upward 2022 CPO price sensitivity range to RM2,800-RM3,200 per tonne


KUALA LUMPUR – Moody’s Investors Service has raised its price sensitivity range for crude palm oil (CPO) to between RM2,800 and RM3,200 per tonne from between RM2,200 and RM2,600 per tonne through 2022.

Vice-president and senior analyst Maisam Hasnain said the revision was made on the back of supply disruptions, low inventory levels and strong prices of competing oils.

While CPO prices would not fall substantially any time soon, they are unlikely to sustain at current spot market levels over the longer-term, he said.

“CPO prices are continuing a rally that started in mid-2020. Supply-side constraints, including labour shortages in major producer Malaysia (A3 stable), will keep CPO prices elevated through 2022,” he said in a statement today.

Hasnain said although Malaysia plans to allow the return of 32,000 foreign workers for the plantation sector, the ramp-up in work would take time and supply constraints would likely persist for the next six to 12 months.

Insufficient labour to maintain and harvest crops is also hurting fresh fruit bunch (FFB) production and FFB yields, he said, citing the average month-end inventories in Malaysia so far in 2021 are lower versus 2020.

Month-end inventory levels in Indonesia (Baa2 stable), too, have decreased as at August 2021 to 3.4 million metric tonne (MT) from 4.4MT in August 2020 as exports and domestic consumption outpaced production.

Meanwhile, Hasnain said strong prices of competing vegetable oils, as well as for crude oil, would also support CPO prices.

“Soybean oil and CPO are substitute oils and their prices are strongly correlated. Prices for CPO and crude oil are also positively correlated because CPO is a biodiesel feedstock,” he said.

Moody’s uses its CPO price range in its financial projections for rated companies to assess their projected performance over the next 18 to 24 months.

The RM3,000 mid-point of the updated price range is 25 per cent higher than the RM2,400 mid-point of the previous range, Hasnain added.