Plantations - CPO price predictions at POTS
Recommendation: Neutral
The falling oil price benefits the GDP of Indonesia, India, Korea and Thailand the most due to the fairly significant impact on their GDP. The consumers in Thailand, India and China will also benefit as fuel comprises a large part of their spending. Our top picks for lower oil prices are AirAsia, Asian Paints, Comfort Delgro and Qantas.
What Happened
We attended the Palm Oil Trade Fair & Seminar (POTS) in Kuala Lumpur where four speakers provided their views on CPO price. The price forecasts provided from now until Mar 2015 ranged from RM2,100-2,500 per tonne. Most presenters were of the view that CPO prices have troughed and could trend higher between now and 1Q15 due to concerns about weaker CPO supplies caused by seasonal factors, the Feb-Mar 2014 drought in Malaysia and ongoing drought in Kalimantan over the past 2-3 months. Dorab Mistry, whose price predictions have a strong following on the conference circuit, projected that CPO futures price will trade between RM2,100-2,300 per tonne for a few weeks, before gradually rising to RM2,500 by Mar 2015. Thomas Mielke from Oil World projects that CPO futures will trade in the range of RM2,300-2,500 per tonne in Jan-Mar 2015, assuming that the current crude oil price is sustained. Dr James Fry from LMC International is of the view that if Brent crude oil price settles at US$85 per barrel, CPO price could trade up to RM2,300 per tonne. Based on the price projections provided, there is potential upside of up to 10% from the current price level of RM2,263 per tonne.
What We Think
Our average CPO price forecasts of RM2,390 per tonne for 2014 and RM2,460 per tonne for 2015 are broadly in line with the key speakers’ price forecasts. We concur with their views that CPO price could rise between now and 1Q15 due to the low production season for CPO, replenishment of edible oils stocks by India (due to lower crushing activities) and China (due to lower palm oil stocks). We also gathered that non-El Nino-related droughts were detected in Riau, Jambi and South Sumatra, as well as Central and South Kalimantan in 1Q and 3Q14. This, combined with the current dry weather in most parts of Kalimantan, would have impact on Indonesia’s CPO production in 2Q and 3Q15. The speakers also said that voluntary biodiesel demand would decline due to weaker crude oil price, although this would be more than offset by concerns about weaker palm oil supplies.
What You Should Do
We maintain our Neutral call on the regional plantation sector as we think that the bearish view on price has been reflected in the underperformance of most plantation stocks in the region relative to the market over the past year. We think that a higher CPO price is required to offset the planters’ weaker production growth and rising costs in 2015.
Source: CIMB Daybreak - 30 October 2014,
Recommendation: Neutral
The falling oil price benefits the GDP of Indonesia, India, Korea and Thailand the most due to the fairly significant impact on their GDP. The consumers in Thailand, India and China will also benefit as fuel comprises a large part of their spending. Our top picks for lower oil prices are AirAsia, Asian Paints, Comfort Delgro and Qantas.
What Happened
We attended the Palm Oil Trade Fair & Seminar (POTS) in Kuala Lumpur where four speakers provided their views on CPO price. The price forecasts provided from now until Mar 2015 ranged from RM2,100-2,500 per tonne. Most presenters were of the view that CPO prices have troughed and could trend higher between now and 1Q15 due to concerns about weaker CPO supplies caused by seasonal factors, the Feb-Mar 2014 drought in Malaysia and ongoing drought in Kalimantan over the past 2-3 months. Dorab Mistry, whose price predictions have a strong following on the conference circuit, projected that CPO futures price will trade between RM2,100-2,300 per tonne for a few weeks, before gradually rising to RM2,500 by Mar 2015. Thomas Mielke from Oil World projects that CPO futures will trade in the range of RM2,300-2,500 per tonne in Jan-Mar 2015, assuming that the current crude oil price is sustained. Dr James Fry from LMC International is of the view that if Brent crude oil price settles at US$85 per barrel, CPO price could trade up to RM2,300 per tonne. Based on the price projections provided, there is potential upside of up to 10% from the current price level of RM2,263 per tonne.
What We Think
Our average CPO price forecasts of RM2,390 per tonne for 2014 and RM2,460 per tonne for 2015 are broadly in line with the key speakers’ price forecasts. We concur with their views that CPO price could rise between now and 1Q15 due to the low production season for CPO, replenishment of edible oils stocks by India (due to lower crushing activities) and China (due to lower palm oil stocks). We also gathered that non-El Nino-related droughts were detected in Riau, Jambi and South Sumatra, as well as Central and South Kalimantan in 1Q and 3Q14. This, combined with the current dry weather in most parts of Kalimantan, would have impact on Indonesia’s CPO production in 2Q and 3Q15. The speakers also said that voluntary biodiesel demand would decline due to weaker crude oil price, although this would be more than offset by concerns about weaker palm oil supplies.
What You Should Do
We maintain our Neutral call on the regional plantation sector as we think that the bearish view on price has been reflected in the underperformance of most plantation stocks in the region relative to the market over the past year. We think that a higher CPO price is required to offset the planters’ weaker production growth and rising costs in 2015.
Source: CIMB Daybreak - 30 October 2014,
