KUALA LUMPUR: Palm oil stock levels are expected to rise as demand from the food and energy sectors continues to be affected by the Covid-19 pandemic and volatile crude oil prices.
Affin Hwang Investment Bank Bhd expects crude palm oil (CPO) prices to remain volatile in the second-half of this year as production will outweigh total consumption.
"We maintain our CPO price assumption for 2020-2021 at RM2,100-2,200 per tonne, given our more cautious stance on the demand outlook and a weak crude-oil price environment," Affin Hwang said in a report today.
The firm said the catalyst for CPO prices in the short term would be a pick-up in demand due to restocking activities and reopening of economies.
The downside to its CPO forecast will be from prolonged uncertainties in the market due to Covid-19 and low crude oil prices.
It said Malaysia's palm oil inventory in May had dipped slightly by 0.5 per cent month-on-month (MoM) to 2.03 million tonnes as total consumption exceeded production.
"We have seen some price recovery in early-June, partly attributable to the anticipation of a pick-up in demand from several key importing countries due to restocking activities as the lockdown measures ease," it added.
It said demand for vegetable oils (including palm oil) could potentially improve in the coming months as hotels and restaurants resume their operations.
"We have revised our valuation metrics and target prices for the plantation companies under our coverage, and upgrade the sector to Neutral (from Underweight).
Affin Hwang is still cautious on the plantation sector, forecasting sector earnings to contract by 2.8 per cent in 2020 before recovering by 24.6 per cent in 2021.
This would be underpinned by improvement in CPO production and demand, it said.
Hong Leong Investment Bank Bhd (HLIB) said palm oil inventory would likely remain at above 2.0 million tonnes in the coming months, on the back of seasonally higher output.
"Since early-May, CPO spot price has recovered by more than 15 per cent, fuelled by several positive development including easing Covid-19 lockdown measures, (improved business ties between Malaysia and India, Indonesian government's commitment on B30 programme, and Malaysian government's recent move to exempt export duty on palm oil products," it said.
HLIB maintained its 2020-2021 average CPO price assumptions of RM2,350 to 2,400 per tonne, before full-swing demand recovery takes place.
"We are keeping our 'Neutral'stance on the sector unchanged, as we believe recent positive news flows have already been reflected in our assumptions," it added.