Highlights

• 5 out of 9 plenary speakers gave price forecasts during palm and lauric oils price outlook conference, with a tight range of CPO price forecasts, ranging from RM2,200/tonne to RM2,700/tonne.

• Among the 3 leading experts (namely Dorab Mistry, Thomas Mielke, and Dr. James Fry), Dorab Mistry appears to be the most bullish in terms of CPO price forecast.

• Mr Mistry has a bullish outlook in the midterm, and projects CPO futures (3-month) to gradually rise from RM2,500/tonne to RM2,700/tonne by Jun-18 while CPO in Rotterdam may rise to US$750/tonne.

• Mr Mielke expects prices of both palm oil and soy oil to trade sideways (or slightly higher, on the back of seasonally low production season) over the next 3 to 5 weeks, and price weakness to emerge from Apr-18 onwards (to as low as RM2,300-2,350/tonne) as production recovers. Nevertheless, he highlighted that CPO price may reach RM2,700/tonne, should palm oil production fall short of expectations, and/or MYR weakens.

• Dr. Fry expects near term CPO prices to rise towards RM2,600/tonne in the next few months (as the suspension of palm oil export tax will lead to lower stock level), and subsequently weaken to near US$600/tonne (or RM2,300/tonne) by Jul-18 (when export taxes in Malaysia are eventually restored) and hitting below US$575/tonne (or RM2,200/tonne by 4Q18), unless Indonesia’s CPO fund acts to step up its mandate.

• We note that our in-house average CPO price projection of RM2,500/tonne for 2018 falls under the range the experts’ views.

Risks

• Higher-than-expected soybean yield and soybean planting, resulting in lower soybean prices, hence prices of CPO.

• Backtracking of biodiesel mandate in Indonesia.

• Escalating production cost (in particularly, labour cost).

Rating

NEUTRAL (↔)

• We maintain our average CPO price assumption of RM2,500/tonne for 2018-2019.

• Maintain Neutral stance on the sector, due to the lack of strong demand catalyst for palm oil. While La Nina and the Government’s recent move to suspend CPO export taxes will lend support to near-term CPO prices, these are just short-term catalysts.

Top Pick

• CBIP (BUY; TP: RM2.13) .

Source: Hong Leong Investment Bank Research - 8 Mar 2018