CPO Prices to be Lower in 2022

Crude palm oil (CPO) prices hit a record high at RM5,015 per tonne in mid-October. But market analysts expect CPO prices and plantation earnings to decline in 2022. This was reported by Thomas Huong in Starbizweek on 16 October 2021.

UOB Kay Hian Research maintains its “underweight” rating on the plantation sector, and expressed its concern over the sustainability of the current demand as the inventory in India and China has been replenished. The research unit is keeping its CPO price forecast for 2021 and 2022 at RM3,300 and RM2,800 per tonne respectively, but sees upside potential due to tight global edible oil supplies while demand is still relatively stable despite high prices.

UOB Kay Hian Research notes that for January to September 2021, the average price reported by Malaysian Palm Oil Board (MPOB) was at RM4,207 per tonne and the average for 2021 could come higher given CPO prices were traded between RM4,747 to 5,072 per tonne for Oct 1 to Oct 12.

However, the net price that will be reported by most of the plantation companies will still be lower than RM4,000 per tonne due to the forward sales contracts and the impact from the exports levy and duty in Indonesia.

The research unit also points out that the surprise import duty cut by India on vegetable oils would be supportive to the palm oil market, as the country is the largest export market for palm oil. Indian edible oil import for September 2021 was a record-high at 1.7 million tonnes (66% higher year-on-year) and this also led to a record high stock position of about two million tonnes at ports and pipelines.

For now, UOB Kay Hian Research believes CPO prices may sustain at the current levels due to the continued disappointing palm oil production as yield recovery from the previous drought is taking longer than expected and there is a lack of workers in Malaysia.

Meanwhile, RHB Research also maintains its “underweight” rating on the plantation sector, and notes that Malaysia’s CPO output was flattish in September, while stocks fell 7% to 1.75 million tonnes.

MIDF Research believes the palm oil supply tightness situation will likely remain at least until end-2021, given limited recovery of yield due to shortages of skilled harvesters, better demand outlook on the back of more economic activities locally and globally and upcoming La Nina weather phenomenon.

With high CPO prices, plantation companies are expected to show better results in 2021/2022. The drawback is on worker shortage. It is time for an aggressive automation of the harvesting process. A windfall tax or excise fund could help fund research and implementation of new processes to reduce foreign labour requirements.

Can we do that?

Source: https://www.malaymail.com

Reference:

CPO prices expected to be lower in 2022, say market analyst, Thomas Huong, Starbizweek, 16 October 2021