- While we expect CPO prices to pick up in 1H24 on seasonally low output and the impact of El Nino, demand remains lacklustre – so prices should be range-bound at MYR3,500-4,500/tonne for the year.
- Malaysia’s December palm oil (PO) stocks dipped 5% m-o-m to 2.29m tonnes, as output and exports declined 13% and 5%. We expect stock levels to continue decreasing in the months ahead, on the back of a lower output season and higher demand related to festive seasons.
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We see more upside risks for the sector now
- We see more upside risks for the sector now, with the impact of the ongoing El Nino and post under-fertilisation activities in 2021-2022. We expect CPO prices to range higher from current levels to above MYR4,000/tonne in 1H24, in anticipation of the El Nino impact on productivity in 2H24F.
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- Our base case: A moderate El Nino, which in previous years had led to a 2-7% decline in PO production. Should the El Nino become a strong one, we would need to relook at our price assumptions.
Rising supply risks, but demand is still relatively unexciting
- With the recent fall in soybean oil (SBO) prices, CPO is now trading at a narrower discount to SBO, of US$261/tonne (from the peak of US$820/tonne in Nov 2022, but above the historical average of US$100-150/tonne). This, together with the current premium to sunflower oil of US$9/tonne (historical discount level: US$150-200/tonne) would deem CPO less attractive vs its competitive oils.
- Meanwhile, palm oil stock levels at most major importing countries are now above historical levels, providing less incentive for significant restocking activities, given fragile global demand on the back of weak economic sentiment.
- Also, competition with Indonesian palm oil remains intense, resulting in Malaysian palm oil losing market share.
Biodiesel mandates provide backbone for demand.
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Hoe Lee Leng RHB Securities Research | Syahril Hanafiah RHB Invest | Singapore Research RHB Invest | https://www.rhbgroup.com/ 2024-01-11
