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Tuesday, 08 May, 2018

CPO to hit RM2,400 on expected inventory fall

KUALA LUMPUR: Analysts are hopeful that the crude palm oil (CPO) price could strengthen to RM2,400 per tonne in the near term, as palm oil stock as at end-April is expected to fall month-on-month to possibly their lowest in six months.

Generally, the depth of the fall determines the extent of the price rise, as a lower inventory is a reflection of demand exceeding supply.

Yesterday, most analysts whom The Edge Financial Daily spoke to shared their forecasts of the CPO price trading around or above the RM2,400 level, up to RM2,600, on expectations of a reduced stockpile and stronger demand.

“The market expects a moderate rise in production from unchanged to a 3% growth, with exports falling 5% to 6%.

“But the focus will be on end-month stock, which is expected to fall between the range of 2% and 3.9%,” said Sathia Varqa, the owner of online publisher Palm Oil Analytics.

He added that any decline of over 4% would help the benchmark futures price to bounce back to RM2,400. However, all price forecasts have been made complicated due to the upcoming general election tomorrow.

“A Pakatan Harapan win will erode the ringgit and send plantation shares lower in the short term, as the patronage system is shattered, but the ringgit should recover in the long term,” he said when contacted.

Meanwhile, TA Securities plantation analyst Angeline Chin shared a relatively optimistic view, forecasting CPO to trade between RM2,400 and RM2,600 next month.

She noted that the benchmark futures price had risen slightly after a recent Reuters poll showed the palm oil inventory in Malaysia sliding to the lowest in six months, as exports and domestic consumption outpaced production.

“Expectations are that production will show a flat to 2% growth, and that exports are going to pick up during the Ramadan season,” said Chin.

Should the growth in exports outpace that of production, such supply and demand dynamics may help support the CPO price in the short term, she explained.

Giving a mid-term view, MIDF Amanah Investment Bank Bhd plantation analyst Alan Lim said the CPO price could appreciate to US$650 (RM2,561) per tonne in the next three months.

This, he said, is due to the anticipated increase in China’s purchase of palm oil from the world’s largest palm oil producer, Indonesia.

Chinese Premier Li Keqiang said yesterday the country is open to increasing the import quota of Indonesian palm oil by at least 500,000 tonnes, after a meeting with Indonesian President Joko Widodo in Bogor. China currently consumes five million tonnes of palm oil.

Demand for palm oil should also climb as countries in the northern hemisphere are currently in the summer months. The edible oil stays liquefied in warmer temperatures, and solidifies during the winter period when demand generally drops.

“We are positive on the CPO price outlook, as we expect the inventory to decline month-on-month. And on the supply side, while we do anticipate that seasonal production will be higher, the actual volume may trail the consensus estimate due to replanting activities in both Malaysia and Indonesia,” he added.

As at press time yesterday, the benchmark palm oil third-month contract had risen RM43 to RM2,383. Industry regulator Malaysian Palm Oil Board is expected to release the official statistics for April this week.

Source : The Edge Markets

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