HLIB: Palm oil stockpile at nine-month low and remains on downtrend in near term

KUALA LUMPUR, April 11 ― The palm oil stockpile is at a nine-month low and remained on downtrend in the near term on the back of a seasonally lower production during the Ramadan month, said Hong Leong Investment Bank Bhd (HLIB).

In a note today, HLIB said the lower stockpile was also contributed by Indonesia’s restrictive export policy and higher biodiesel admixture, which will likely support palm oil shipment from Malaysia.

“The stockpile is falling by 21.1 per cent month-on-month (m-o-m) to 1.67 million tonnes in March 2023, due mainly to sharply higher exports (+31.8 per cent m-o-m).

“We believe the crude palm oil (CPO) price will likely remain well supported at above RM4,000 per tonne in the near term, supported by weak near-term production outlook, coupled with Indonesia’s biodiesel mandate and near-term restrictive export policies.

HLIB said it maintains the neutral stance on the sector, given the absence of notable earnings growth catalyst.

Meanwhile, Maybank Investment Bank Bhd said the steep backwardation in CPO future price curve suggests that the market is anticipating the present tightness in supply to ease once Indonesia lifts its export restrictions after Ramadan and stronger output recovery from Malaysia from April onwards.

“We maintain our view that the CPO future price will ease by mid-year on expectation of seasonal output recovery,” it said in a note.

Meantime, Public Investment Bank Bhd said in a note that Malaysian production is expected to recover in the next few months while Indonesia might open its floodgates on exports soon as the Ramadan period comes to an end.

On other note, Kenanga Investment Bank Bhd said the outlook on palm oil exports is likely to stay firm for some months to come as the third largest soybean planter, Argentina, faces very poor harvest, offsetting much of the increment due from Brazil, which is the leading soyabean producer.

“Prices of palm oil are also expected to stay firm over 2023 and into 2024 supported by healthy demand.

“Coupled with the sector’s asset-rich balance sheet and just over one time price book value, the sector looks defensive even amid the current economic uncertainties,” it said. ― Bernama