The crude palm oil (CPO) price has been revised upwards by 13 per cent to RM3,400 per tonne for this year from RM3,000 per tonne previously, says MIDF Research.

The research house also expects the CPO price to break the RM4,000 per tonne level in the first quarter, due to strong demand for the coming Chinese New Year.

'However, the high price may not be enough to dampen demand for CPO and this would further provide a short-term potential upside for the price,' MIDF Research said in an equity note today.

It said demand of edible oils from China appears to be price inelastic and a higher import is expected, in order to replenish the inventory level for the coming Chinese New Year, which falls on Feb 3.

In November, although the CPO price reached its first yearly high, Malaysian and Indonesian CPO exports to China increased by US$149 million and US$454 million month-on-month, respectively.

Consumption in China is expected to increase by eight per cent this year.

Demand from India is also strong with consumption growing at 21 per cent per annum for the last five years and the uptrend is expected to continue.

'Growing incomes in emerging middle class countries like India and China are expected to drive the global demand for vegetable oils,' MIDF Research said.

Malaysian exports to India was up by US$28.7 million or 52 per cent month-on-month in November last year.

Consumption is expected to grow at 10 per cent this year

MIDF Research said it was also revising the forward earnings of companies under its coverage by an average of 7.5 per cent.

'We are bullish on the agriculture commodity sector especially CPO, on the back of weak global production, and high demand in addition to the weakening US dollar,' it said.

Plantation stocks have been rallying with the CPO price. The KL Plantation Index rose 26 per cent last year with a 48 per cent increase in the CPO price.

The CPO price also rose to its 33-month high of RM3,913 per tonne on Tuesday while the Plantation Index has gained 2.1 per cent year-to-date.

'We expect the CPO price to continue its upcycle given the demand-supply mismatch. That will be positive for plantation stocks,' MIDF Research said. --Bernama