Crude Palm Oil - 26 May 2021 Update

 Some plantation companies have released their quarter reports like KLK, TSH, IOI, SIME Plant etc.

All showing good profit/revenue as a result from high CPO price.

However, market believe that CPO will not sustain and below are some points from a research house:

Analysts forecast that CPO price will not sustain till year end because of the following:

• Weak consumption
• Stock increase

Coming months (June onward) are production peak months. The forecast CPO price after Sept will drop to RM3500 per tonne. My view is RM3500 per tonne is still very high and companies will benefit. See my writing on HS plantation dated 12 May 2021 (exactly same forecast!!).

Weak consumption is because China switched to import more soybean for pig farming and Europe tighten the use of palm oil (this is not new actually). The only export market that is supporting is India.

 

According to the research house, the recent spike of CPO price are due to the following reasons:

·         Soybean price increase

·         Tight supply of CPO

·         Quantity easing which cause flow of funds to commodity

 

There is also problem of ESG compliance for certain companies like FGV and Sime Plantation. US is banning SIME plantation. The foreign holding of these companies is reducing. Labour shortage is another issue that plaguing plantation companies.

 

In short, below is the forecast of the research house

Year	Second half 2021	2022
Forecast CPO price / RM/tonne	3500	2700

 

My View:

RM3500 per tonne is super good price and RM2700/tonne is good price.

If we look at recent quarter reports form KLK, TSH, SIME and IOI, all showing CPO price around RM3000 per tonne.

 

 From SIME Plant:

From IOI Plantation

“KUALA LUMPUR: IOI Corporation Bhd is expected to post much stronger results in the fourth quarter ending June 30,2021 (4Q21), underpinned by higher palm oil prices and production, TA Securities Research says.

In its research note on Monday, it said IOI Corp management expects the overall financial performance for 4QFY21 to remain good, supported by high crude palm oil (CPO) price and increase in crop production from the plantation segment as well as the expected demand improvement in the manufacturing segment as the global economy recovers gradually”

 

Unless the actual realized CPO is much lower than published CPO price, the profits of these companies will be as good as forecasted. Let's monitor and see.