PETALING JAYA: Crude palm oil (CPO) costs will doubtless stay elevated for some time, probably into the tip of the primary half of 2022, if not longer, in line with Hong Leong Funding Financial institution (HLIB) Analysis.
WhileHLIB Researcht makes no modifications to its CPO value projections for now, given the fluid scenario, it believes that the commodity costs will doubtless surpass its 2022 to 2024 projections of RM4,300, RM3,300, RM3,300 per tonne respectively.
HLIB Analysis mentioned CPO costs are forecast to stay elevated as a result of palm provide disruption in Malaysia, which can doubtless persist into the subsequent few months, in addition to output uncertainties on main oilseeds (resembling soybean, corn and sunflower seed) arising from the Russia – Ukraine battle and drought in South America.
“Additionally, the Indonesian authorities’s latest transfer to boost home market obligation (DMO) to 30% will additional tighten provide of vegetable oil within the export market,” mentioned the analysis unit.
On March 10, 2022, the Indonesian authorities had additional restricted exports of palm oil merchandise, through the rise in DMO volumes to 30%, from 20% beforehand.
HLIB Analysis mentioned though the Malaysian Palm Oil Board tasks CPO output in Malaysia to enhance by 4.9% to 19 million tonnes in 2022, this is determined by well timed arrival of overseas employees into Malaysian shores, and enough fertilizer utility (which stays a giant query mark, significantly among the many smallholders amidst fertilizer scarcity).
In the meantime, a protracted battle between Russia and Ukraine will influence provide of fertilizers (therefore impacting vegetable oil output), given Russia’s main place on this planet’s provide of fertilizer and associated uncooked supplies resembling urea, ammonium nitrate and potash.
HLIB Analysis maintained its “chubby” stance on the plantation sector, underpinned by excessive near-term CPO costs which can in flip translate to good near-term earnings prospects, easing environmental, social, and governance considerations, and respectable valuations.
Primarily based on its estimates, each RM100 per tonne rise in its CPO value projection will elevate earnings forecasts for plantation shares beneath its protection by 3.5% to fifteen%.
The analysis unit’s prime picks stay FGV Holdings Bhd (goal value: RM2.43); IOI Corp Bhd
(goal value: RM5.09), Kuala Lumpur Kepong Bhd or KLK (goal value: RM32.43) and Sime Darby Plantation Bhd (goal value: RM5.95).
In the meantime, Maybank Funding Financial institution (IB) Analysis mentioned the latest fertilizer value rally is provide facet pushed, including the provision crunch was as a result of United States and European Union (EU) sanctions on Belarus in 2021.
Belarus accounted for 17% of worldwide potash commerce in 2020.
Additionally, the Covid-19 pandemic brought on some fertilizer manufacturing amenities to run beneath optimum capability in 2021. The surge in power costs particularly pure fuel (feedstock for ammonia) has brought on EU crops to be not value aggressive and the EU shutdowns are anticipated via the primary half of 2022.
The analysis unit mentioned for oil palm growers, apart from rising fertilizer value stress, there have been challenges in securing fertilizers as a result of disrupted provide in second half of 2021.
“For some, they’ve introduced ahead unused fertilizer that was not utilized in time within the fourth quarter of 2021 as a result of heavy rainfalls.
“Therefore, the associated fee pressures shall be extra obvious within the second half of 2022 as soon as growers absolutely exhaust the cheaper fertilizer provides bought from final yr,” mentioned Maybank IB Analysis, including that given the current lofty CPO and palm kernel costs, growers will be capable to soak up these value pressures.