KUALA LUMPUR: Crude palm oil (CPO) price is expected to start tapering off when the commodity's seasonal output recovery takes place.
Hong Leong Investment Bank Bhd (HLIB) noted that the CPO price had averaged at RM4,062 per tonne year-to-date.
Nevertheless, HLIB has maintained its CPO price assumptions for 2024 and 2025 at RM4,000 per tonne and RM3,800 per tonne.
"Palm oil stockpiles are expected to resume an uptrend from April this year, as production will likely remain on an uptrend due to seasonality.
"Meanwhile, exports are expected to weaken due to the absence of festive-driven demand and palm oil's weak price competitiveness against other competing oils," it said in a note.
At the time of writing, HLIB said the discount of palm oil to soy oil had narrowed to US$89 per tonne, down from the six-month average of US$245 per tonne.
As such, the investment bank maintained a "Neutral" stance on the sector, given the absence of notable demand catalyst.
HLIB's top picks are IOI Corp Bhd with a "Buy" call and target price of RM4.66, while Hap Seng Plantations Holdings Bhd with a "Buy" call and target price of RM2.06.
Palm oil stock level fell for the fifth consecutive month, by 10.7 per cent month-on-month (MoM) to 1.72 million tonnes in March 2024, the lowest since May 2023.
This is as seasonally strong exports demand more than offset higher output.
The stockpile came in lower than 1.76 million tonnes estimated in a Bloomberg survey, due mainly to stronger-than-expected exports.
Meanwhile, palm oil production resumed its uptrend (for the first time since Oct 2023), rising by 10.6 per cent MoM to 1.39 million tonnes in March 2024.
Cumulatively, first quarter of 2024 (1Q24) production increased by 3.4 per cent year-on-year (YoY) to 1.05 million tonnes, with fresh fruit bunch (FFB) yield and oil extraction rate (OER) rising to 3.5 tonnes per hectare and 19.66 per cent respectively.
This is up from 3.35 tonnes per hectare and 19.52 per cent compared to the same period last year.
This improvement is attributed mainly to the enhanced availability of labour, according to HLIB's assessment.
Meanwhile, HLIB noted that exports recovered for the first time since October 2023, rising by 28.6 per cent MoM to 1.32 million tonnes in March 2024, boosted by stronger demand ahead of Ramadan and Eid ad-Fitr festivals.
During March 2024, the sharp increase in exports was driven mainly by higher exports to India, Africa and Asia Oceania, according to Intertek Services.
Cumulatively, 1Q24 exports declined marginally by 1.6 per cent YoY to 3.69 million tonnes, due mainly to lower exports to China.
Intertek Services also indicated that Malaysia's palm oil shipment increased by 12.7 per cent MoM to 431,200 tonnes during the first 10 days of Apr 2024, led mainly by higher exports to Asia Oceania, European Union, and India.
Echoing similar views, CIMB Securities anticipates palm oil supplies will remain tight in April due to fewer working days and a reduced workforce during the Hari Raya holidays.
This, combined with higher usage of palm oil for biodiesel purposes in Indonesia is likely to keep palm oil export supplies tight until April 2024.
"We project palm oil stocks to fall by 13 per cent MoM in April 24.
"We are of the view that palm oil stocks could bottom out in April before rising in May due to the seasonal rise in palm oil supply and stiff competition from other edible oil substitutes (currently traded at a discount to palm oil).
"However, competition with sunflower oil from the Black Sea region could ease slightly in the near term due to higher shipment costs to transport them to Asia owing to the threat of Houthi attacks," it added.
CIMB also said in the second half of 2024 (2H24), palm oil supply could fall short of expectations due to the lower rainfall observed in some parts of the palm oil region since late Jan and the outbreak of sooty mold and mealybugs in Sabah palm oil plantations.
This can cause up to 30 per cent decline in FFB yields for the affected area.
It also said the anticipated transition from El Niño to La Niña (with a 60-80 per cent chance of development in 2H24) and the capacity to recruit foreign workers amid a current shortage of 40,000 workers will be crucial factors to monitor in the latter half of 2024.
CIMB has maintained its average crude palm oil CPO price forecast for 2024 of RM3,900 per tonne.