PETALING JAYA: The outlook for palm oil in 2018 is deemed to be challenging.
Amid stiff market competition, the century-old plantation sector will
continue to struggle with long-standing labour shortage, rising
operating costs, dwindling demand in traditional export markets and
increasing anti-palm oil campaigns in the West, say market analysts.
One consolation... industry players and analysts have pegged the
average price of crude palm oil (CPO) at RM2,400-RM2,800 per tonne in
2018 – which is much higher than local planters’ average production cost
of RM1,200-RM1,500 per tonne of CPO.
The fortunes of plantation companies are dependent on a stable CPO price, say analysts.
Plantation companies stand to benefit from the weaker ringgit, given
the fact that palm oil is an export-oriented commodity using the US
dollar or other foreign currencies, while the planters’ cost of
production is ringgit-denominated.
Among planters, a mere RM100 increase in the CPO price per tonne
could translate into additional “hefty” contributions to group profits.
One analyst points out that every RM100 per tonne change in the CPO
price could result in an “addition or reduction of RM250mil” to Sime
Darby Plantations Bhd while for
Felda Global Ventures Holdings Bhd 
, it would be an “addition or reduction of RM100mil”.
Palm oil experts generally are painting a good short-term CPO price
outlook in 2018. Godrej International Ltd director Dorab Mistry is the
most bullish, predicting CPO futures to hit RM3,100 per tonne this
month.
This is based on his assumption that Brent crude oil will trade at
US$45-US$65 per barrel, the US Federal Reserve will raise interest rates
and the US dollar will strengthen against currencies in Brazil,
Argentina and India.
At a recent international palm oil congress held here, planter
United Plantations Bhd
deputy chairman Datuk Carl Bek-Nielsen has projected CPO at RM2,400 to
RM2,800 per tonne while Plantation Industries and Commodities Minister
Datuk Seri Mah Siew Keong is positive that CPO will trade at
RM2,600-RM2,700 in 2018.
The average CPO price in 2017 saw an increase to about RM2,815 per tonne compared with RM2,653 per tonne in 2016.
Kenanga Research in its latest report has estimated CPO price at RM2,400 per tonne in 2018.
Despite a decent short-term outlook, the research unit expects weaker
average CPO price at RM2,400 per tonne in 2018, softer by 11% from
RM2,700 per tonne in 2017.
“This is largely due to a sector-wide production uptrend as planters
in Malaysia and Indonesia experience a recovery from severe droughts in
2015-2016 due to a super
El Nino,” it adds.
With depleted inventories largely restored in 2017, Kenanga Research also sees more CPO price downside than upside in 2018.
Nevertheless, positive catalysts include the wet weather
La Nina earlier in the year, and potential support from better crude oil prices.
“In the short term, we expect demand to pick up particularly from
China as Chinese New Year demand comes into play at the end of
February,” says Kenanga Research.
Although other regions tend to face softer demand over the winter
season as palm oil solidifies in cold weather, it also expects the
festival boost to be supportive to palm oil prices, especially in
January.
With a weaker supply-side outlook in December 2017 to February 2018
due to the wet weather and a seasonal production downtrend, the overall
price trend should be positive over the next few months.
Kenanga Research points out that while a weak
La Nina may not have significant impact compared to the typical monsoon season seen in the region, “only a moderate to severe
La Nina phenomenon would be seen as a significant price catalyst (for CPO)”.
CPO production increased in 2017, post
El Nino, a situation which resulted in a severe drought that affected the fresh fruit bunches (FFB) production.
To recap, during the big
El Nino phenomenon in 1997 and
1998, local palm oil production saw a huge growth the following year.
Currently, local estates are already showing similar signs of growth in
output, following the super
El Nino seen in 2015-2016.
The Malaysian Palm Oil Board (MPOB) is targeting CPO production to
hit 19.5 million tonnes in 2017 compared with 17.5 million tonnes in
2016.
Apart from increasing production, local palm oil stocks is also on the rise.
The latest statistics from MPOB saw end-November 2017 palm oil stocks
rising to its highest in almost two years at 2.56 million tonnes.
“Growing stock levels could put pressure on the palm oil futures benchmark prices,” says one analyst.
As at 5pm Friday, the third month benchmark CPO futures contract for March was trading lower at RM2,511-RM2,512 per tonne range.
JF Apex Securities in its Dec 12 report says: “Overall, we believe
the slight drop in CPO price is attributed to expectation of higher
production.”
Its 2017 full-year CPO average price forecast remains at RM2,800 per
tonne as “strong soybean oil price had lifted CPO price over last few
months.”
“We are maintaining our neutral view on the sector as we expect
recovery of FFB production will be neutralised by the softening in CPO
price with inventory piling up.”
Credit/Source: The Star
