KUALA LUMPUR: The plantation sector is expected to see a pick up in demand in the coming months amidst rising output.
Malaysia's September palm oil (PO) stocks rose 9.6 per cent month-on-month (MoM) to 2.31 million tonnes, as output rose 4.3 per cent MoM while exports fell 2.1 per cent MoM.
"While demand may pick up in the coming months due to the festive season, increased competition and a continued peak season could result in Malaysian PO stocks staying above the 2 million-tonne mark until the year-end," RHB Investment Bank (RHB) Research said in a note.
The research house said crude oil prices remain elevated as geopolitical tensions rise, but this has not had a similar effect on CPO prices yet, likely due to the offsetting impact from a stronger US dollar.
Nevertheless, if the palm oil-gas oil spread remains positive, this could result in the discretionary demand for biodiesel rising by 2.5-3 million tonnes per annum.
"As such we maintain our RM3,900 per tonne CPO price assumption for 2023 and 2024, and continue to prefer Malaysian players vs regional players, RHB Research said.
It has maintained a neutral rating on the plantation sector.
The research house also said almost 3,000 hotspots were detected in Indonesia in mid-September, with Sumatra and Kalimantan accounting for more than two-thirds of these, as per National Disaster Mitigation Agency data.
Indonesian officials have sealed off 35 large plantation locations in West and Central Kalimantan and South Sumatra to facilitate investigations.
"Possible penalties being discussed are an indemnification order (which would involve independent experts assessing economic losses based on the size of affected areas), a prison term as long as 10 years, and the sequestration of corporate profits. "Based on our channel checks with planters under our coverage, none of their estates have been sealed off in Indonesia. However, there are some companies with hotspots nearby that are constantly monitored," said RHB research.
Some planters started seeing less rain in August-September already in Kalimantan, but this has not significantly affected productivity, it added.
According to Indonesia's weather bureau, the wet season may be delayed this year until late October or November in Sumatra and Kalimantan.
"We still expect El Nino to impact productivity from late 2Q24 onwards, thereby pushing crude palm oil prices (CPO) higher in 2H24F," RHB Research said.
The firm has 'buy' calls on IOI Corp Bhd (target price RM4.55), Sarawak Oil Palms Bhd (target price RM2.85) and Ta Ann Holdings Bhd (RM4.10).
"Regionally, we prefer integrated players like Golden Agri Singapore and Wilmar International," it added.-ends-