CRUDE palm oil (CPO) prices are expected to strengthen to RM2,600 a tonne next year as unexpected rainfall deficit returns in central Kalimantan and south Sumatera, Indonesia.
Indonesia is the world’s largest CPO producer after Malaysia.
In its research note, Maybank Kim Eng said a slowdown in Indonesia’s new planting will bode well for CPO price in the next two to three years as supply growth slows. “We see sustained CPO price recovery to above RM2,400 a tonne in the first quarter of next year.”
The research house recommends investors to buy Sime Darby, Bumitama Agri, First Resources and Sarawak Oil Palms stocks, but hold on to TSH Resources Bhd and sell off IOI Corp’s stocks.
However, planters feel there is limited downside to current CPO price.
“Selected planters in south Sumatera and central Kalimantan experienced rain fall deficits in September, which lasted around one month,” Maybank said, maintaining its “neutral” call on the sector.
It said production next year could be affected as new planting in Indonesia appears to have slowed in recent years as planters are entering more difficult areas and increasingly stricter Roundtable on Sustainable Palm Oil requirements.
It will also slow down as higher compensations required by the local governments and the public, and some greenfield land are deemed grey areas and unplantable due to overlapping mapping claims by the agricultural, forestry and mining ministries.
“We believe 2015 CPO supply growth will be muted compared with this year.”