Positive sentiment fuels CPO march upward

By CHOONG EN HAN
han@thestar.com.my

 

PETALING JAYA: Crude palm oil (CPO) prices continue to march upwards just days after suffering from their worst single-day plunge since July 2008, following favourable developments and initiatives that buoyed sentiment towards the highest yielding vegetable oil.

Third-month December benchmark contract closed marginally higher at RM2,523 per tonne up, 2.6% or RM66, as investors hedged their risk on expectations that CPO prices would rebound moving towards the end of the year.

Research houses maintained a “neutral” stance on the sector as HwangDBS Vickers Research suspects that CPO storage is close to the tank’s capacity, and expects CPO exports to be jolted with fire sale prices.
“Planters need to cut down on harvesting to prevent wastage and to conserve cash amid weak CPO prices.
“We believe these actions should temporarily address Malaysia’s inventory overhang. However, the refinery industry’s feedstock cost issue still needs to be tabled to provide a more lasting solution,” it said.

Malaysian Palm Oil Board’s (MPOB) monthly statistics released on Wednesday showed CPO output increased by 20.4% month-on-month and 7.2% year-on-year in September to 2 million tonnes due to the peak cycle season, while exports improved by 4.5% to 1.51 million tonnes. However, the quantum of growth in exports did not balance off the surge in production.

Maybank Investment Bank Research reckoned that the weak exports was a victim of the recent changes in government policies (of Indonesia, Malaysia and India) on their export and import duties.
“As Malaysian refiners are uncompetitive vis-à-vis Indonesian peers resulting in lower purchases of CPO, CPO storage tanks in Malaysia are overflowing during these peak production months.
“Despite an unpopular move ahead of the general election, the Government may be forced to lower its CPO export tax rate to 8%-10% (from 23%) as soon as this Friday to boost exports,” it said.

RHB Research said despite the 25% fall in CPO prices since early-September, the plantation index had only fallen by 5.6%.
“While we concur that CPO prices will bounce back towards the year-end, we believe that share prices of the plantation stocks we cover are currently only reflecting CPO prices of RM2,700 to RM3,000 per tonne.
“We believe it is therefore possible for share prices to fall a little further to reflect a larger fall in CPO prices before rebounding as per our expectation of CPO prices,” it said.

The plantation index closed 10.08 points lower at 8,157.68. Index contributors IOI Corp Bhd fell 2 sen to RM5.06 and Kuala Lumpur Kepong Bhd declined 4 sen to RM21.32.

Plantation Industries and Commodities Minister Tan Sri Bernard Dompok is expected to make a round of presentation to the cabinet today on the moves to cut the export tax, and discuss on how Indonesia and Malaysia can work together to stabilise the price of CPO.
He would also be seeking support for the nationwide implementation of the B5 biodiesel programme which could help speed up the take-up of palm oil in the country.