STORY: Analysts say CPO prices to remain volatile on market, weather uncertainties
DATELINE: June 14, 2023
LENGTH: 00:02:34
LOCATION: Kuala Lumpur
CATEGORY: ECONOMY

SHOTLIST:
1. various of the palm plantation area
2. various of palm trees and fruits on the tree
3. various of a backhoe loader gathering palm fruits
4. various of palm oil factory
5. various of trucks carrying a bunch of palm fruits and oil trucks on the road

STORYLINE:

Analysts on Tuesday expected crude palm oil (CPO) prices to remain volatile due to the market and weather uncertainties that could impact crop production and prices.
   
Affin Hwang Investment Bank said in a note that it made no changes to its CPO average selling price assumptions of 3,800 ringgit (823 U.S. dollars) to 4,000 ringgit per ton for 2023 amid the volatility.
   
Besides, it said that the expectation of favorable crop prospects in the United States and Canada, cautious buying due to global recessionary fears and spill-over weakness from declining energy prices, have also pressured the CPO prices.
   
However, it noted that any deterioration in crop conditions due to extreme wet/dry weather would impact edible oil production from 2023 to 2024.
   
Overall, it expects Malaysia's CPO production to increase in the 2023 season, but marginally and potentially in the range of 18.6 million tons to 18.8 million tons, from 18.45 million tons in 2022, on the back of easing of the labor shortage problem as it expects more workers entering Malaysia this year.
   
Meanwhile, Maybank Investment Bank said in a note that the looming El Nino will heighten CPO market volatility as the market evaluates its impact.
 
While an El Nino is generally positive for CPO price over a 24-month period from the onset, the investment bank said it is not a linear uptrend as other factors can influence prices too.
   
Maybank also said that the market is anticipating CPO production prospects to further improve in the coming months as the industry enters into its seasonal peak output in the second half.
   
"However, what is worrying is the present soft demand for palm oil as CPO price continues to trade at narrow discounts to competing major vegetable oils and gas oil relative to historical averages," it said.
   
Maybank foresees CPO full year average prices at 3,400 ringgit per ton in 2023 as compared to 5,088 ringgit per ton in 2022.
   
In another note, UOB Kayhian, a Singapore-based brokerage firm, expects the price recovery of CPO to be further enhanced by El Nino.
   
The research house projected the CPO price to be at 4,000 ringgit per ton in 2023 and 2024.
   
UOB Kayhian believed that CPO prices have weakened lately mainly due to concern about high soybean supplies in the coming season, as projected by the U.S. Department of Agriculture (USDA), and global weak demand continuing to weigh down palm oil exports.
   
According to UOB Kayhian, El Nino will result in drier weather for Indonesia and Malaysia, which will negatively impact the productivity of oil palm trees.
   
Hong Leong Investment Bank Research, meanwhile, in its note maintained 2023 to 2024 CPO price assumptions of 4,000 ringgit per ton and 3,800 ringgit per ton, pending more updates on El Nino development.
   
It said that the palm oil stockpile in Malaysia will likely remain on the uptrend in June, on the back of a seasonally higher cropping phase, tepid export demand arising from the absence of festive-driven demand and palm's weak price competitiveness vis-a-vis other competing oils.
   
Kenanga Research, on the other hand, in its note toned down its CPO price assumption from 3,800 ringgit to 3,700 ringgit per ton amid weak exports.
   
According to the research house, softer competing edible oil prices, prospects of biofuel weakness from a slower global economy, along with major buyers such as India having bought adequate stocks for now, are some of the contributors to current palm oil export weakness.
   
However, it noted other traditional palm oil buyers, such as Pakistan, the Middle East, and Africa, are accumulating palm oil.
   
"Altogether, improving supply should be absorbed by an equally strong demand pick-up, hence any seasonal inventory build-up (e.g. during peak harvest months) is likely to be temporary," it said. (1 ringgit equals 0.22 U.S. dollar)

Xinhua News Agency correspondents reporting from Kuala Lumpur.
(XHTV)