KUALA LUMPUR, June 13 ― Crude palm oil (CPO) prices for 2023/2024 is likely to remain at RM3,700 per tonne, backed by improving supply and an equally strong demand pick-up.

In a note today, Kenanga Research opined that any seasonal inventory build-up ― for example, during peak harvest months ― is likely to be temporary.

As such, the research firm maintained its 'neutral' call for the oil palm plantation sector.

"CPO prices are still soft, hence overall upside catalyst is still weak,” it said.

In a separate note, Public Investment Bank also maintained its ‘neutral’ call on the sector, saying that there have been no signs of recovery for CPO prices in April-May as fundamentals remain weak.

It noted that the palm oil industry is facing stiffer competition from Indonesian players due to excess inventory held during the festive period, while the South American region is seeing bumper harvest for soybean.

"On the positive side, there has been a substantial drop in fertiliser cost, which accounts for about 30 per cent of total production cost.

"The sector’s downstream business is also seeing a challenging outlook due to weaker demand for oleochemical and weak margin for the refining segment; as such, we expect to see weaker financial performance in the second quarter of 2023 (2Q 2023),” it said, adding that its full-year CPO price assumption stood at RM3,800 per tonne.

Another research firm, RHB Investment Bank (RHB IB) also maintained its 'neutral' call for the plantation sector.

It expects the sector’s earnings to decline further quarter-on-quarter in 1Q 2023 on the back of lower CPO prices and weak productivity, coupled with elevated costs.

However, it said earnings should be better in the second half of the year as productivity improves and costs moderate.

As such, RHB IB said it made no changes to its CPO price assumptions for 2023 (RM3,900 per tonne), 2024 (RM3,500 per tonne) and 2025 (RM3,500 per tonne). ― Bernama