Plantation
Plantation Sector - Soybean Oil and Palm Oil Price Spread Goes Negative
Wed, 11-Sep-2024 07:23 am
by Steven Chong • Apex Research

Sector Update

 

  • CPO production was marginally higher in August. CPO production in August was marginally higher (+2.9% mom) at 1.9m tonnes as compared to a sharp growth of +14% mom in July. CPO production in August was at the highest level in 8 months, in line with market expectations. Growth was mainly driven by high production cycle but the dry weather had impacted fruit yield. Looking ahead, we are anticipating CPO production growth to remain robust in September as the sector enters the seasonally peak production cycle.

  • Palm oil exports slid with soybean oil trading at discount. Exports in palm oil retreated -9.7% mom and to 1.5m tonnes in August. During the month, we gather that the spread between soybean oil and palm oil narrowed and has turned negative on the final week of the month, on the back of firmer CPO prices. Consequently, CPO’s price competitiveness against SBO has diminished, prompting a shift in demand towards SBO. Moving forward, we anticipate export growth will remain subdued in the coming month, as weaker demand alongside with the strengthening of Ringgit, will likely dampen palm oil exports.

  • Palm oil closing stocks pilling up. Palm oil closing stock grew in August, recording 1.9m tonnes (+7.3% mom) stockpiles. The bourgeoning palm oil inventory was mainly attributed to the subdued palm oil demand in August. Meanwhile, the surge in palm oil inventory is detriment to the recovery of CPO prices, as it would stoke concern of looming oversupply of the commodity. We opined that palm oil inventory could climb further amid ample CPO production coupled with tepid demand.

  • CPO prices moved sideways in August by trading in the range of RM3,833/mt to RM4,070/mt. CPO prices recorded an average of RM3,910/mt in August, which represents a downtick of -3.1% from RM4,034/mt in July. We believe the weakness in CPO prices stem from the recovery of Ringgit against USD and expectations of higher CPO production going forward.  Nevertheless, we maintain our full-year forecast for average CPO price at RM4,000/RM3800 for CY24 and CY25.

  • Keeping Neutral stance. We are maintaining our Neutral stance on the sector, as as we do not foresee immediate catalyst to the sector at the moment. We keep our HOLD calls for Kuala Lumpur Kepong (FV: RM20.35), Kim Loong Resources (FV: RM2.34), Hap Seng Plantations (FV: RM1.79), United Plantation (FV: RM27.21), and Sarawak Plantations (FV: RM2.24).

     

Recommendation: Neutral
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