The anticipated gradual recovery in palm oil export demand has driven the Plantation Index on Bursa Malaysia to retain its steady performance.
Among plantation heavyweights pushing the index higher, IOI jumped 18 sen to RM4.03, KLK added eight sen at RM20.68, while Sime Darby Plantation was unchanged RM4.74 at 3pm.
Yee Lee, also a manufacturer of edible oil, added four sen to RM2.06, while Sarawak Oil Palm and Boustead Plantations were flat at RM2.48 and 29.5 sen respectively.
FGV, however, dropped one sen to 92 sen and Hap Seng Plantations was unchanged at RM1.38.
MIDF Research in a note today said it saw a sequential recovery of 4.7% month-on-month export demand, mainly driven by China (34.7%), India (60.4%) and Europan Union (EU) (7.4%).
“We are of the view that this was primarily attributable to the easing of lockdown and low vegetable oil stocks in the above major palm oil consuming countries.
“Note that this was slightly lower than the consensus’ expectation by -0.3%,” it said.
Moving forward, MIDF Research expects the gradual reopening of the hotel, restaurant, café (HoReCa) businesses and economic activities in both the domestic and export market as well as the current Ramadan festival to continue to lend support to the crude palm oil (CPO) demand in coming months.
“However, we remain concerned that the anticipated recovery might be met with possible headwinds such as intermittent lockdowns should new cases of Covid-19 re-emerge and renewed India’s ban on refined palm oil,” the research house added.
As for production, it expects growth in coming months to be normalised albeit still having a relatively higher yield as compared to in the first quarter of 2020.
However, on a year-to-date basis, production decreased by 16.6% due to a high base effect and also driven by the lagged effects arising from lower fertiliser application and unfavourable weather conditions in the previous year.
The lower output mainly stemmed from the lower contribution from the state of Negeri Sembilan (-28.7%), Kelantan (-26.9%), Pahang (-26.4%), Sabah state (-23.1%) and Terengganu state (-20.2%).
Moving forward, MIDF Research said the anticipated sequential recovery in export demand and higher domestic consumption to continue to support the CPO price.
“Nonetheless, we continue to believe there might be price instability in the short-term dependent on the severity of the demand loss from the possible intermittent and extended Covid-19 lockdown,” it added.
On a year-to-date basis, the spot price currently averaging at around RM2,548 per tonne, owing to moderated CPO production and lower inventory level.
It expects the CPO price to trend lower towards RM2,450 per tonne this year.
“There is also concern that the palm oil-based biofuel is losing its appeal in view of the subdued crude oil prices as evidenced from the delay in implementation of the higher biodiesel mandate in Malaysia and Indonesia.
“Nonetheless, we view that the CPO price to be mainly supported by the lower inventory level on a year-over-basis and the anticipated recovery in export demand arising from the gradual easing of lockdowns in major palm oil-importing countries such as China and EU,” said MIDF Research.
It also sees an increasingly healthy demand for CPO usage in oleochemicals of the downstream segment for the production of personal hygiene and cleaning products both during and post Covid-19 pandemic.