Out of the 5 speakers who shared their CPO price forecasts during Palm Oil Conference (POC) 2023, Dorab Mistry and Thomas Mielke are bullish on CPO price, while Dr James Fry, U.R. Unnithan, and Rasheed Janmohammed appeared to be less bullish on CPO price. Maintain 2023-24 CPO price assumptions of RM4,000/mt and RM3,800/mt, as well as our Neutral stance on the sector (given the absence of notable earnings growth catalyst). For exposure, we still favour integrated players such as KLK (BUY; TP: RM26.27) and IOI (BUY; TP: RM4.36).

Mixed CPO price outlook. Out of the 5 speakers who shared their CPO price forecasts during Palm Oil Conference (POC) 2023, Dorab Mistry and Thomas Mielke are bullish on CPO price, while Dr James Fry, U.R. Unnithan, and Rasheed Janmohammed appeared to be less bullish on CPO price.

Dorab Mistry: CPO futures to trade between RM4,000-5,000/mt until Aug-22. Mr. Mistry expects CPO futures (3rd month) to trade between RM4,000/mt and RM5,000/mt between now and Aug-23, supported by Indonesia’s B35 biodiesel mandate (which will keep palm oil inventories tight for 1H23), and further drawdown in Malaysia’s palm oil inventories (to below 2m tonnes, cause by heavy rainfall and Indonesia’s restrictive export policies). Beyond Aug-23, CPO prices will be determined by weather uncertainties – in particular, El Nino.

Thomas Mielke: better palm oil price in 2H23. Mr Mielke opined that palm oil has lost its growth momentum, due to (i) a notable slowdown in area expansion, (ii) insufficient replanting and management constraints (which will keep yields below potential), and (iii) soaring input costs and strict sustainability criteria which discourage investments. He expects palm oil prices to improve in 2H23 (with RBD palm olein price forecast of USD1,150/mt), supported by (i) tightening palm supplies arising from Indonesia’s ambitious biodiesel mandate, and (ii) slow palm oil output growth.

James Fry: Steady decline in gasoil prices to drag CPO price lower. Dr. James Fry opined that gasoil has replaced Brent crude in setting the floor to CPO price post Russia’s invasion of Ukraine. He projects CPO futures to average at RM3,760/mt in 2023 (and trade at RM3,350/mt by end-23), as he anticipates gasoil prices to decline steadily (as implied by gasoil futures).

Rasheed Janmohammed: Downside risk in CPO price from Jul-23 onwards. Mr Janmohammed (Chief executive of Westbury Group) expects CPO price to trade between RM3,800/mt and RM4,200/mt until Jun-23, primarily due to uncertainties in Indonesian policies, recent floods in Johor area of Malaysia (which may create near term uncertainties in palm supply), and uncertainties in Argentina’s soybean supplies. He sees downside risk in CPO price from Jul-23 onwards, mainly on the back of economic challenges in certain palm consuming countries (such as Pakistan, Bangladesh, Turkey and Egypt).

Indonesia’s palm oil exports to fall in 2023. Fadhil Hasan (head of trade and promotion division at Indonesian Palm Oil Association, GAPKI) expects Indonesia’s palm oil exports to fall in 2023, on the back of the shift in composition of palm oil demand from export oriented to more domestic consumption (following the country’s recent move to raise its biodiesel admixture to B35 from B30 previously). He projects Indonesia’s palm oil export growth by 7.7% in 2020-2025 (from a positive growth of 8.1% in 2016-2020).

Forecast. Maintain 2023-24 CPO price assumptions of RM4,000/mt and RM3,800/mt, respectively. While our in-house 2023 CPO price forecast of RM4,000/mt appears to be at higher end of the speakers’ forecast range, we believe near-term CPO price will remain well supported at above RM4,000/mt, supported by weak near term production outlook (arising from recent heavy rainfall, and Indonesia’s biodiesel mandate and near-term restrictive export policies).

Maintain Neutral stance on plantation sector. We maintain our Neutral stance on the sector, given the absence of notable earnings growth catalyst. For exposure, we still favour integrated players such as KLK (BUY; TP: RM26.27) and IOI (BUY; TP: RM4.36).

Source: Hong Leong Investment Bank Research - 9 Mar 2023