WILMAR INTERNATIONAL LIMITED (SGX:F34)
FIRST RESOURCES LIMITED (SGX:EB5)
Agribusiness Stocks - Key Takeaways From Virtual Palm & Lauric Oils Price Outlook Conference & Exhibition 2020
- Speakers at the POC were generally positive on CPO prices till end-2020F.
- The key driver for the current CPO price rally is the concern of tight edible oils supply, and this situation is likely to prevail till 1Q21F.
- Overall, we are more positive on CPO price prospects in 1H vs. 2H 2021F
Positive outlook for CPO price till end-2020 at Virtual POC event
- CGS-CIMB was both speaker and participant of the recently concluded Virtual Palm and Lauric Oils Price Outlook Conference & Exhibition (POC) 2020, from 27 to 28 Oct 2020, which attracted around 1,750 registered participants. The event highlighted CPO price trends and industry developments.
- Most speakers concurred that CPO prices are likely to stay around RM2,500 to 3,000 per tonne for the rest of the year due to tight palm oil and other edible oils stocks, concerns over the La Nina impact on edible oil supplies, and labour constraints in Malaysia, which could negatively impact FFB yields from the estates in the coming months.
What is driving the current CPO price rally?
- The event speakers generally concurred that the recent CPO price rally was driven by supply disruptions in key edible oils as well as palm oil producing regions. Palm oil output from Malaysia and Indonesia was adversely affected by lower rainfalls, reduced fertiliser application, shortages of workers, and movement restrictions in some palm oil regions.
- The lower-than-expected supply of other edible oils (in particular sun and rapeseed oils) had also helped induce the sharp rise in vegetable oil prices from Jun 20 onwards, which had a spillover effect onto CPO prices.
- Although the restricted movements imposed in most countries had caused a certain level of demand destruction on edible oils, the reduction in palm oil exports was short lived, as key importing countries underwent restocking activities, while reduced availability of yellow greases and animal fats have led some biodiesel producers to switch their feedstocks to vegetable oils.
Outlook and key obstacles for CPO price in 2021F
- For the rest of 2020F, the speakers concurred that CPO inventories are likely to stay tight and CPO prices will likely remain elevated. Also key to note is that the current edible oil stockpiles in China and India are also tight, which will keep edible oil imports healthy. The rise in competing edible oil prices are also positive as it could encourage consumers to switch to palm oil demand as a cheaper alternative.
- For 2021F, most speakers agree that palm oil supply will improve in 1H21F due to the rainy season we are currently experiencing, which should be beneficial for FFB yields.
- Several speakers indicated their concerns that the current zero export tax for CPO in Malaysia may not be extended beyond 31 Dec 2020, and this could negatively impact CPO exports to India, while Indonesia could raise their CPO export levy to support its B30 mandate.
- Other potential factors that could derail the CPO price rally include lower biodiesel usage in Indonesia due to insufficient CPO levy and government funds for the mandate, lower crude oil prices, favourable weather conditions and changes in government policies that cause demand destruction and favour supply growth in the edible oils market.
Spot CPO price hit a new YTD high of RM3,185 per tonne
- CPO price rose to a new YTD high of RM3,185 per tonne on 27 Oct, on concerns of lower-than-expected palm oil supply from Malaysia with the new SOP restrictions in Sabah, potential adverse impact on soybean supplies due to the La Nina event, as well as strong palm oil exports in the first 25 days of Oct.
- The recent rise in CPO price is above our expectation, and should CPO prices stay around RM3,000 per tonne for the rest of the year, the 2020F average CPO price could reach RM2,600 to RM2,650, higher than our current projection of RM2,500 per tonne, which will be positive for plantation earnings as we expect the rise in CPO price to more than offset the decline in output.
- We reiterate our Neutral rating; our preferred picks in Malaysia are Genting Plantation, Ta Ann and Hap Seng Plantations.
- Our regional picks are Wilmar (SGX:F34) and First Resources (SGX:EB5).
Ivy NG Lee Fang CFA
CGS-CIMB Research
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Nagulan RAVI
CGS-CIMB Research
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https://www.cgs-cimb.com
2020-10-29
SGX Stock
Analyst Report
5.530
SAME
5.530
1.800
SAME
1.800
