We attended the three-day Palm and Lauric Oils Conference 2024 (POC 2024), hosted by Bursa Malaysia. The tone was generally bullish as majority of the speakers expect CPO price to break above RM4,000/mt level in the near-term. Dr.Sathia’s forecast of RM3,500-3,700/mt was the closest to our 2024’s average forecast of RM3,800/mt. This year, the key focus is on the looming European Union Deforestation regulation (EUDR), which will affect global commodity demand. Meanwhile, speakers also raised their concerns over the limited supply growth from both Indonesia and Malaysia, which could drive the CPO prices higher. At the point of writing, CPO futures ended at RM4,081/mt. Our top pick is Ta Ann.

• Palm oil Consensus forecasts average at RM4,000/mt. Generally, most industry experts have a bullish view on the CPO price in 2024 but mostly think that it will trade lower in the 2H. Interestingly, the two notable palm oil experts have a bullish view on the CPO prices, citing the limited supply palm oil growth in the top two producing countries. However, their concerns are in contrast with the local planters, who have mostly guided a double-digit production growth for this year. Thomas Mielke anticipates palm oil prices to hit as high as RM4,300/tm while Dorab Mistry expects as high as RM4,500/mt. Mr. M Fadhil, who represents Indonesia’s GAPKI, has the most bullish call as he sees CPO prices could potentially touch as high as USD1,000/mt (RM4,730/mt).

• All eyes on the implementation of EUDR. The looming introduction of EUDR, which prevent companies from importing commodities with deforestation and forest degradation into the EU market. The new law has included 7 commodities within the scope of the EU regulation, namely, soy, cattle, palm oil, wood, cocoa, coffee and rubber. Products of the commodities included in the regulation may only be placed on or exported from the EU market if they can prove they are i) deforestationfree, ii) have been produced in accordance with the relevant legislation of the country of production and iii) covered by a due diligence statement. We think the production from the smallholder plantation may have difficulty to be absorbed by the palm oil producers given the poor traceability and lack of transparency. Their FFB production might be absorbed at a discounted price to be sold to other regions.

• Major wildcards to CPO price forecasts include: i) the possibility of La Lina event in the 2H, ii) changes of domestic market obligation and biodiesel mandate in Indonesia, and iii) weather abnormalities in North America, which could pose a threat to the soybean supply.

Source: PublicInvest Research - 7 Mar 2024