KUALA LUMPUR: Analysts have a mixed-reaction on plantation sector, mainly due to minor price weakness dragged by lower upside risk with short-term crude palm oil (CPO) trading between RM2,250 and RM2,500 per tonne.
Kenanga Research has maintained a neutral call on the sector with unchanged trading price of RM2,400 per tonne in anticipation of potential demand and price volatility from protectionist actions.
“Our trading range now implies higher downside of nine per cent. We continue to think that policy measures (especially protectionist actions) will be a big demand and price driver for the year.”
It said investors will need to stay nimble to avoid volatility, or select safer options with lower correlation to CPO prices.
Kenanga Research said the overall palm oil stocks should increase two per cent to 2.38 million tonnes this month, as supply at 1.73 million tonnes exceeds demand of 1.68 million tonnes.
The research firm said it expects continued production uptrend by seven per cent to 1.68 million tonnes on continued recovery in Peninsular Malaysia and Sabah.
“Exports should slow seven per cent to 1.45 million metric tonnes, as we believe restocking activity had largely taken place, while Indian demand should normalise going forward.”
Palm oil stocks declined six per cent to 2.32 million tonne last month, for the fourth consecutive period.
“This was less than market’s anticipated nine per cent decline to 2.27 million tonnes. But it was above our 2.50 million tonne forecast as Indian demand surged 26 per cent to 395,000 tonnes in anticipation of tax regime changes.”
Meanwhile, it said palm oil production improved 17 per cent to 1.57 million tonnes last month. Exports as a whole also rose 19 per cent to 1.57 million tonnes due to strong Indian demand as noted.
MIDF Research, meanwhile, has maintained a “positive” call for the sector, despite the reduction in its CPO price assumption of RM2,600 per tonne.
“We maintain our positive view on the sector as CPO price has remained strong in US dollar. We also believe that CPO price should trend upwards in the second quarter (Q2) of 2018 and second half (2H) due to improved demand outlook for palm oil.”
MIDF Research said the good global economy growth should lead to higher consumption per capita.
On the supply side, its consensus estimate of huge supply growth may not be fully realised due to ongoing labour shortage and the potentially high replanting activity in Indonesia.
“Indonesia plans to replant up to 165,000 ha of oil palm plantation land this year. This could limit the supply surge by between 0.5 and 0.6 million tonnes assuming oil yield of 3.5 tonne per ha.”