PETALING JAYA: Plantation stocks may experience a short-term upswing if the El Nino effect continues to strengthen in the coming month, said Hong Leong Investment Bank (HLIB).
This is due to the possible upsurge in crude palm oil (CPO) prices as crop yields decrease on account of the prolonged hotter-than-usual temperature, noted the research firm.
HLIB predicts that the CPO price would average at RM3,800 for the 2024 fiscal year (FY2024), while market consensus forecasts an average of RM3,400.
“To ride on this theme, we recommend tactically focusing on pure upstream plantation stocks whose earnings are highly correlated with CPO prices, such as Sime Darby Plantation Bhd (SDP),” it said in a note.
From a technical perspective, HLIB notes that SDP’s stock is currently consolidating near the support level of RM4.13-RM4.20.
“A decisive breakout above RM4.40 will indicate a new up leg and spur the share price towards RM4.60-RM4.78-RM4.94. Cut loss at RM4.05,” it said.
On the contrary, some analysts predicted that CPO prices will drop in the near future given the expectations of a higher stock and muted demand.
Palm oil trader David Ng told Bernama that palm oil stocks are likely to increase by 6% in June 2023 compared to May 2023.
“Hence, we expect prices to trade between RM3,650 and RM3,900 per tonne,” said Ng.
Mumbai-based Sunvin Group commodity research head Anilkumar Bagani also projected an increase in Malaysian palm oil stocks.
He estimated Malaysian palm oil stocks to rise by 11% to 1.86 million tonnes as of end-June, from 1.69 million tonnes in May, due to the slight 3% decline in production and 2.7% drop in exports.
In a previous report, the Malaysian Palm Oil Association estimated that palm oil production for June amounted to 1.41 million tonnes, reflecting a decrease of 7.39% compared to May.