Analysts: CPO prices likely to decline further

KUALA LUMPUR: Analysts estimate crude palm oil prices to fall further on heightened global economic uncertainties and higher palm oil output, in the second half of the year.

In its notes to investors, MIDF Research reduced its palm oil price forecast to RM3,200 per tonne from an earlier RM3,400.

It downgraded Kuala Lumpur Kepong Bhd, Kulim Bhd and Sarawak Oil Palms Bhd on limited potential upside in its share prices but recommended a "buy" call on defensive stocks of high dividend yield like TH Plantations Bhd.

Another research house, UOB KayHian, maintained its assumptions that the vegetable oil will average at between RM2,900 and RM2,700 per tonne. "All Malaysia-based plantation companies under our coverage posted strong production growth in the second quarter of this year, especially those with larger exposure in Sabah. IJM Plantations Bhd, with 100 per cent Sabah exposure, is likely to post the strongest quarter-on-quarter earnings growth," UOB KayHian said.

"Other Sabah-concentrated planters, such as Genting Plantations Bhd and IOI Corp Bhd, also recorded strong quarter-on-quarter production growth," it added.

Last Friday, Standard & Poor's downgrade of the long-term US credit rating to "AA-plus". Fear over the US credit ratings downgrade and a worsening debt crisis in Europe triggered a broad sell-off across equities and commodities, except for gold. The Reuters-Jefferies CRB index, the 19-commodity benchmark, fell nearly 4.5 per cent last week, its steepest drop since a rout in early May fuelled by concerns of a stalling global economic recovery.

In Kuala Lumpur, palm oil futures had plunged by more than RM180 or 6 per cent in the last three trading days. 

Yesterday, the third month benchmark crude palm oil futures on the Malaysian Derivatives Exchange continued to fall to close at RM2,920 per tonne. This level is 23 per cent lower than this year's high of RM3,780 per tonne traded in January.

HDM Futures, in its notes to traders, said the palm oil futures market is vulnerable to more declines, with prices seen at a support level of RM2,890 per tonne.

A day before news broke out on the US becoming a less reliable debtor, palm oil traders had already anticipated price softening. Palm Oil Refiners Association of Malaysia (Poram) chairman Wan Mohd Zain Wan Ismail reportedly said palm oil prices are likely to soften by 8 per cent to RM2,800 per tonne on higher output in next three months.

"We are expecting softening in palm oil prices ... production is rising and is set to peak in September and October," he said at the sidelines of a vegetable oils conference in Mumbai, India.

According to the Malaysian Palm Oil Board, oil palm planters harvested and squeezed 8.59 million tonnes of crude palm oil, in the first half of this year. That was 8 per cent more than the same six months, a year ago.

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