Friday, February 11, 2011

RHB Research maintains overweight on plantations, sees CPO trading RM3,100

KUALA LUMPUR:'' RHB Research Institute reiterates its view that its crude palm oil (CPO) price assumptions of RM3,100/tonne for 2011 and RM2,900/tonne for 2012 would be maintained as long as the weather normalises and La Ni''a ends within the next few months, resulting in 'normal' production levels in 2H2011.

However, if La Ni''a persists, CPO prices could potentially remain high at above RM3,500/tonne for the entire year, it said on Friday, Feb 11.

RHB Research said CPO production fell in Jan by 14.2% on-month, while exports fell by 6.2% on-month.'' Although part of the fall in production was offset by the fall in exports, in January, CPO imports rose by 49% on-month and 13.6% on-year likely due to insufficient local CPO supply for refiners in the country.

As a result, closing CPO stock levels fell 12.2% on-month and 29.2% on-year in January. Stock/usage ratio in Jan thus fell again to 8.37% (from 8.68% in Dec), dropping further below the 9-year average of 9.1%, although this is still relatively far from the lowest historical level of 6.4%. Note that the fall in exports in Jan was mostly due to demand rebalancing from price sensitive countries like China, India and Pakistan.

Despite recent positive weather news flow in South America, soybean and other vegetable oil prices continue to rise, likely due to other weather-related crises caused by La Ni''a that has affected oilseed and grain crops from other countries.

'In addition, we believe the continued fight for acreage between oilseeds and grains particularly in US will be a recurring theme which will result in prices moving upwards, in anticipation of future supply risks. The USDA has been revising its crop acreage and production estimates repeatedly, as farmers vacillate between wanting to plant more corn or more soybean, depending on which crop gives the best profit margin at the time,' it said.

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