PETALING JAYA: CGS-CIMB Securities Sdn Bhd expects crude palm oil (CPO) prices to stay firm at the RM3,800-RM4,500 per tonne range at the start of the first quarter of 2023 (Q1 2023) due to several factors.
The brokerage firm said there are concerns over supply risks due to the ongoing drought in Argentina, which could lead to severe soybean crop losses, the ongoing La Nina and potential El-Nino, as well as the lower sunflower seed production from Ukraine due to the ongoing war with Russia.
“Secondly, biodiesel demand is rising as Indonesia will raise its biodiesel mandate to B35 in February 2023. It has raised biodiesel allocation by 19% to 13.15 million kilolitres (kls) in 2023 from 11.02 million kls in 2022.
“Indonesia has also reduced its domestic market obligation ratio to six times of domestic sales requirements from eight times, which would restrict Indonesia’ palm oil exports, in our view,” it said in a note today.
Hence, CGS-CIMB Securities expect CPO prices to soften from Q2 2023 onwards as palm oil output recovers with the entry of more foreign workers while slower global growth curbs demand.
Meanwhile, MIDF Research said the CPO price is expected to see volatile trade between January and March at between RM3,500 and RM4,500 per tonne, benefiting from the price disparity between CPO and soybean oil price.
“However, we also recognise the downside risk of fragile demand on the back of inflationary pressure coupled with tight household spending on high base interest rate locally and globally as well as another Indonesian extension of zero-levy policy for palm oil exports in 2023,” it said.
In another note, Kenanga Investment Bank Bhd said palm oil prices should stay relatively firm. It maintains a 2023-2024 CPO price forecast of RM3,800 to RM3,500 per tonne.
“Edible oil prices have eased after mid-2022 on higher supply but demand, subdued by the Covid-19 since 2020, is likely to recover in 2023 as well.
“Inventory levels are thus expected to stay range-bound for much of 2023,” it said.
CGS-CIMB Securities, MIDF Research and Kenangan Investmant Bank are neutral on the sector.