The three world-renowned speakers who presented their views on CPO price in the 2^nd day of Palm Oil & Laurics Conference (POC) were all bullish on CPO prices. Mr. Dorab Mistry expects palm oil prices to increase to RM3000 by June before declining to the range of RM2600-RM2900 between July-October. However, if El Nino hits, he expects palm oil prices to cling to RM3000 after June and surge to RM3500 by end-2014. Meanwhile, Mr. Thomas Mielke believes that palm oil prices should increase to USD1000 CIF Rotterdam in 4-8 weeks (Effective price estimated to be RM3090*). Lastly, Dr. James Fry believes that palm oil prices should increase to USD1030 CIF Rotterdam (Effective price estimated to be RM3185*) by June with full year average at USD970 CIF Rotterdam (Effective price average estimated to be RM3000*).

The experts’ views are more bullish than ours probably due to higher Brent crude oil assumption at USD110/barrel against ours at USD107.50/barrel. Our forecast that CPO prices should increase to RM2900 by end March is so far accurate, but we think it should hover between RM2600-RM2900 for the rest of 2014 as production picks up seasonally from April onwards. Hence, we maintain our average CPO price forecast of RM2800 for 2014 at this juncture. However, we are watching the current dry season closely and we wish to highlight that CPO prices could surge above RM3000 to hit RM3200 by end-June if the dry season extends beyond March. This is due to our view that CPO production would come in substantially lower below current market expectation and cause inventory to be depleted significantly to a 7-year low level of 1.25m mt by Jun-2014.

To conclude, we believe that investors may finally regain their confidence in the plantation sector and we expect significant upside to planters’ share price in the next one month. OVERWEIGHT maintained on plantation sector with top picks being IOICORP (OP; TP: RM5.15) and TSH (OP; TP: RM4.10) in the big cap and mid cap space respectively. We also have OUTPERFORM calls on SIME (TP: RM10.00), KLK (TP: RM26.10), PPB (TP: RM17.00), IJMP (TP: RM3.80), TAANN (TP: RM5.00) and CBIP (TP: RM4.05). Maintain MARKET PERFORM on FGVH (TP: RM4.75), GENP (TP: RM10.85) and UMCCA (TP: RM7.50).

Bullish view on CPO prices; short term average at RM2954/MT by June-2014. Based on the six speakers who presented their CPO price views during the conference, their forecasts for 2014 range from RM2500 to RM3185 per mt. The consensus average CPO price forecast for 2014 was RM2825 per mt and this is much better (or +19%YoY) against 2013’s average of RM2371 per mt. Most of the experts believe that Indonesia swift implementation of its biodiesel plan and the still occurring tree stress should support CPO prices upside.

The most bullish view is from Dorab Mistry. Under normal weather scenario in which the current dry period will end by next week, Mr. Dorab Mistry (Director of Godrej International Ltd.) expects palm oil to increase to RM3000 by June before declining to the range of RM2600-RM2900 between July-October. However, if El Nino hits, he expects palm oil prices to cling to RM3000 after June and surge to RM3500 by end-2014. He mentioned that CPO production is under-performing currently, inventory levels are tight and Indonesia biodiesel policy is the game changer in CPO market.

Oil World’s Thomas Mielke is positive too. Mr. Thomas Mielke (Executive Director of ISTA Mielke GmbH Oil World) believes that palm oil prices should increase to USD1000 CIF Rotterdam in 4-8 weeks. Effectively, this works out to be RM3090*. For full-year average, Thomas Mielke is expecting average CPO prices of USD970 CIF Rotterdam (implying RM3000 based on our estimate). He is positive on Indonesia biodiesel mandate and this should lead to limited supply to global consumers as exports for palm oil globally should decline for the 1st time in 16 years.

Dr. James Fry expects Malaysia palm oil inventory to decline to 1.5m mt by Jun-2014. Dr. James Fry (Chairman of LMC International) believes that palm oil prices should increase to USD1030 CIF Rotterdam by Jun-2014 as Malaysia palm oil inventory is then expected to decline to 1.50m mt. Effectively, this works out to be RM3185*. His key assumption is that Brent crude oil will stay at current level of USD110 per barrel and he expects Brent crude oil to continue to acts as floor to EU CPO price.

Source: Kenanga