Mixed views on plantation sector

PETALING JAYA: Analysts are mixed on the outlook of the local plantation sector but expect crude palm oil (CPO) price to rebound in the second quarter of this year on slower output growth and further downgrades in the South American soybean crops.

Public Investment Bank Bhd in its latest update said CPO outlook was clouded by uncertainties.

Year-to-date, CPO prices averaged RM3,294 per tonne compared with RM3,564 per tonne last year, down 7.6%. April's average CPO prices stood at RM3,495 per tonne versus March's average of RM3,315 per tonne.

Nevertheless, the research unit expects some downward pressure on the commodity market in the short term given the less-than-encouraging economic data in the United States and China, as well as political and economic upheavals in Europe, which would slow down demand.

“We reaffirm our calendar year 2012 and 2013 average CPO prices of RM3,200 and RM3,100 per tonne respectively,” it added.

It also said lower-than-expected production in April also helped maintain the stockpile level consistently low. CPO prices, meanwhile, had recently weakened below RM3,350 per tonne, still slightly higher than the research unit's forecast. “We believe the lower-than-expected production is largely due to tree stress after a bumper harvest last year.”

PublicInvest Research's top picks under its plantation coverage are Sime Darby Bhd and Genting Plantations Bhd.

Meanwhile, CIMB Research is maintaining its average CPO price predictions of RM2,970 per tonne this year and RM3,060 per tonne next year “for now”.

The predictions would likely be upgraded around RM100 to RM200 per tonne in the coming month if the South America's soybean turned out to be lower than forecast, the research unit said in its latest sector update.

“The downgrades in soybean harvest and lower CPO production can keep price elevated in the near term, thus helping to ration demand,” it added.

CIMB Research, however, continues to hold the view that CPO price will peak in the second quarter before trading lower in the second half as palm oil supply improves.

It pointed out that Malaysia's end-April palm oil stocks, though down 5% month-on-month, were 3% to 5% ahead of CIMB Research and consensus forecasts due to lower CPO exports.

“Weak refining margins and lower domestic CPO supply pushed Malaysian refiners' utilisation rates to their lowest level since 2006,” it said, adding that the higher-than-expected palm oil stocks should not dent prices much given the cuts in estimates of soybean supplies.

“We expect demand to pick up in the coming months, ahead of the Ramadan festival which will boost palm oil exports to refineries overseas, such as India, which is having increasing difficulty sourcing CPO from Indonesia,” it added.

The CPO share of total palm product exports also continued to rise from 24% in March to 28.3% in April.

“This and lower palm oil imports from Indonesia reaffirm our view that the change in Indonesia's export tax structure in September last year has made Malaysian refiners less competitive.

“This situation is also reflected in Malaysian refiners' low average utilisation of only 55% in April due to lower domestic CPO supply.

“We expect the situation to worsen as more refining capacity comes onstream in Indonesia in the second half this year.”

MIDF Research, meanwhile, is maintaining its neutral call on the plantation sector as it expects potential downtrend of the CPO price in the second half this year, with a trough probably as low as RM2,900 per tonne.