• Palm oil price has been hit by double whammy of Covid-19 pandemic and weak crude oil price.

• Demand remains the key concern amid the Coronavirus pandemic. We project Malaysia’s export to be lower at 17.06m tonnes in 2020 from 18.47m tonnes in 2019.

• Inventory level is expected to end at 2.05m tonnes in 2020, just slightly higher than 2019’s level of 2.01m tonnes.

• CPO production is forecast to drop 5% to 18.87m tonnes in 2020 from 19.86m tonnes in 2019.

• We revised our average CPO price forecast for 2020 to RM2,300/MT from RM2,480/MT previously. Neutral call on the sector retained.

First quarter 2020 in retrospect

The price of CPO started 2020 on a strong note at RM3,052/MT, but the trend was relatively short-lived as it started to fall below RM3,000/MT in the middle of Jan after hitting its highest level on 10th Jan 2020 at RM3,134/MT. Price continued declining, trading within a range of RM2,250/MT to RM2,000/MT in mid-April up to end of April 2020. The BMD’s 3-mth CPO futures price is currently at RM1,983/MT while local delivery at RM2,096.50/MT.

Local CPO price began falling below RM2,100/MT on 27th April 2020, after the prospect of another US-China tensions rose and progress in developing a vaccine for coronavirus remained unclear. In addition, MPOB’s weak March data which pointed to an increase in PO stock level and subdued demand, added downward pressure to CPO price.

Taking cue from the weakening in CPO prices, plantation stocks declined to their respective lows in the first quarter of 2020 with THP recording the biggest share price decline YTD March 2020, down by a hefty 58%. We foresee that any further decline in CPO price may induce another knee-jerk reaction on plantation stocks – as CPO price is one of the main drivers on plantation companies’ earnings.

Source: BIMB Securities Research - 8 May 2020