MIDF Research has maintained a positive stance on the plantation sector with 2021 average price forecast of RM3,200/mt.
It said that it believes the palm oil supply tightness situation will likely remain at least until 3QFY21. On the demand front, low palm oil inventories in India and China will also encourage the replenishing activities
On another note, price-wise, the research house anticipates that the CPO price will soften in 2HCY21 as we expect production to recover due to better weather condition. So encourage the replenishing activities.
In terms of weather outlook, the research house said that it is worth noting that the Niño 3.4 region has trended warmer. The drier weather and lack of heavy rains will boost local palm oil production as it will help to increase the productivity of harvest activities.
Nonetheless, MIDF opined that the palm oil price would not ease drastically or go below RM2500 level due to these factors namely unresolved labour shortages due to border closure, implementation of MCO rules on agribusiness, upbeat export demand, slow production growth and firm demand for palm oil-based biodiesel.
Malaysia’s July 2021 palm oil inventory decreased by -7.3% mom to 1.50million metric tonne which represents about a three-month low inventory level since March-21.
In tandem, on a year-over-year basis, the stockpiles plunged by -11.9%yoy on the back of lower opening stock of 1.61million mt (-15.1%yoy).
The inventory level came in lower than consensus’ expectation with a variance of -8.8%mom. The decline in inventory level in the previous month was predominantly attributable to; (1) lower CPO production (-5.2mom), and (2) lower volume of import (-51.9%mom).
Going ahead, we expect stockpiles to improve due to anticipation of the upcoming peak production period
The July-21 export was down by – 0.8%mom to 1.41m mt from 1.42m mt in the previous month, mainly due to lower demand from China (-23.1% mom) and India (-19.8% mom).
Palm oil export key destinations, namely China and India slumped last month due to the latest Covid-19 outbreaks fuelled by the Delta variant in both countries.
The resurgence of Covid-19 cases in certain Asia countries have influenced the consumption in food and non-food sectors and slowed the pace of demand recovery in 2HFY21.
However, moving forward, we believe that the large-scale Covid-19 vaccination rollouts worldwide will help to boost higher demand in food.
We are anticipating moderate growth of export demand given that the two largest consuming countries namely China and India are not severely affected by the resurgence of Covid-19 cases.
On top of that, low palm oil inventories in India and China will also encourage the replenishing activities. In tandem, on a year-over-year basis, the total export demand plunged by -21.0%yoy, primarily due to the fall in export demand from China (-43.2%yoy), India (-50.6%yoy) and US (-36.8%yoy).
