PETALING JAYA: Analysts expect palm oil inventory to remain on a downtrend in July, with average price of crude palm oil (CPO) to range from RM2,175 to RM2,300 per tonne this year.
Hong Leong Investment Bank (HLIB) Research said the inventory is likely to remain on a downtrend this month, on the back of Raya holidays (which will drag output), weak ringgit and palm's widened price discount against soybean oil, which will support demand for palm oil as well as prices.
"CPO price averaged at RM2,288 per tonne in 1H, we are maintaining our average projected CPO of RM2,300 per tonne for the full-year, as we are holding the view that El Nino phenomenon (which continues to strengthen and will likely last throughout end-2015, according to weather forecasters) and palm's widened price discount against the soybean oil, will support higher palm oil prices in 2H," it said in its research note yesterday.
It maintained its average CPO price assumption of RM2,400 per tonne for 2016, with catalysts for the sector being the implementation of higher biodiesel mandate in Indonesia and Malaysia as well as weather uncertainties, which would result in supply distortion hence boosting prices of edible oil.
It also maintained its "neutral" stance on the sector, with a favourable long-term outlook. However, it noted the weak demand and price outlook as negative factors for the sector.
Meanwhile, MIDF Research expects inventory to decline 3% to 2.09 million tonnes in July.
"We believe that the total demand of 1.93 million tonnes is likely to outpace total supply of 1.87 million tonnes in the month of July. Our key assumption is flat production month-on-month due to the dry weather currently.
"On the demand side, we expect export to decline slightly by 2% month-on-month as demand normalise after the fasting month. Despite the expected decline in inventory, we believe that its positive impact to CPO price is limited due to other factors such as the rising US dollar trend and low crude oil price," it said in its research note.
It maintained its average CPO price of RM2,175 per tonne for 2015, representing a 9% drop year-on-year against 2014 average CPO price of RM2,383.50 per tonne, as the inventory level is not expected to have significant impact on CPO price.
"For the top pick, we continue to like PPB Group Bhd (PPB), as we expect the company to benefit from low CPO price as Wilmar's consumer products segment margin is likely to expand in view of lower palm olein prices," it said.
"Additionally, PPB's 1Q15 earnings growth at 61% year-on-year is also the strongest among index-linked planters which registered on average earnings decline of 48% year-on-year. Lastly, PPB earnings is poised to benefit from stronger US dollar to ringgit as Wilmar earnings is reported in US dollar," it added.
Source : The Sun Daily
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