Plantation
Plantation Sector - Soft demand triggers CPO price correction
Wed, 12-Feb-2025 07:06 am
by Steven Chong • Apex Research

Summary

  • We estimate CPO production to pick up in Mar 2024 as weather conditions stabilise, allowing for improved harvesting and better FFB yield.

  • CPO price to stay elevated throughout Q1 2025, as we expect palm oil demand to recover post winter in Feb 2025.

  • Maintain Neutral rating on the sector given that valuations has fully reflected the surge in CPO price. Top pick: KIML and HAPL.

 

CPO production shrank in January 2024. CPO production fell for the fifth consecutive month in Jan 2025 amid low production season. CPO production in Jan fell 16.8% mom. CPO production was typically lower in the first quarter as wet weather had complicated harvesting. Looking ahead, we expect this downward trend to continue in Feb 2025 before picking up in Mar 2025 as weather conditions stabilise, allowing for improved harvesting and better FFB yield.

 

Weaker palm oil demand. Palm oil exports in Jan 2025 were -12.9% lower than the previous month following notable decline of -14.6% mom in Nov 2024 and -10.0% mom in Dec 2024. Palm oil demand stayed subdued in the past three months as cold weather in Northern Hemisphere has dented demand for palm oil. Nonetheless, actual export figures were still better than independent cargo surveyor Intertek’s initial projection, which had forecasted an -18.9% mom drop for the first 25 days of January.

 

Drawdown in palm oil inventory. End Jan 2025 palm oil stock level recorded at 1.58m tonnes, -7.5% mom lower than the inventory level of 1.71m tonnes in end Dec 2024. The decline in palm oil stock level was in line with past historical trend due to the sharp fall of CPO production. Going forward, we anticipate a further decrease in palm oil inventory in February, as CPO production are expected to remain tepid from seasonal low yields. 

 

CPO price in Jan 2025 average at RM4,673, down -8.7% mom. CPO price fell in Jan 2025 after recording two consecutive months of gains, sliding by -8.7% mom as compared to the preceding month. We reckon the correction was weighed down by the lingering concern over weak palm oil demand amid winter in Northern Hemisphere despite CPO production was seasonally lower during the period. Nevertheless, we expect CPO price to gain traction when the palm oil demand recovers post winter in Feb 2025. Besides, we believe the narrowing price gap between soybean oil and CPO, along with a weaker Ringgit, will support palm oil exports by making it more affordable for overseas refiners.

Recommendation: Neutral
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