Highlights

• Speakers were generally bearish on their 2015 palm oil price outlook during the Palm Oil Conference (POC 2015) organised by Bursa Malaysia.

• While vegetable oil prices will remain volatile, Mr Thomas Mielke sees limited downside for vegetable oil prices, with CPO price (Rotterdam) averaging at US$770/mt (RM2,800/mt).

• Dr James Fry believes 2015 is a year of 2 halves for CPO price, with an average CPO price projection of RM2,260/mt in 1H15, and RM1,770/mt in 2H15. He expects Brent crude prices will remain under pressure (on the back of rising interest rates in the US), and persistently low Brent crude prices will affect demand for palm-based biodiesel.

• Similar to Dr James Fry, Mr Dorab Mistry believes 2015 is a year of 2 halves for CPO price, which he expects CPO futures to trade as high as RM2,500/mt between now and May-15, and decline to RM2,100/mt in 2H15.

We are keeping to our average CPO price projection of RM2,300/mt and RM2,400/mt in 2015-2016, as well as our NEUTRAL stance on the sector.

Catalysts

• Earlier-than-expected recovery in the world’s major economies, resulting in higher edible oil demand and prices;

• Timely implementation of higher biodiesel mandate in Indonesia and Malaysia.

• Weather uncertainties revisit, which would result in supply distortion, hence boosting prices of edible oil.

Risks

• Demand risk from major palm oil consuming countries;
• Demand destruction from price sensitive palm oil consuming countries;
• Sharper-than-expected rise in production cost; and
• Expansion/operational risk.

Rating

NEUTRAL

Positives

• (1) Improved demand outlook; and (2) Betterproduction cost visibility.

Negatives

• (1) Price attractiveness of CPO diminishes; and(2) Pricey valuations for the sector. Sector View
• None.

Source: Hong Leong Investment Bank Research - 5 Mar 2015