THE Malaysian palm oil market is expected to remain uncertain and experience only a little growth in 2023.
This is due to concerns of global economic slowdown and uncertainties in weather patterns, the impact of war in Ukraine as well as the risks of inflation, said Malaysian Palm Oil Board (MPOB) DG Datuk Ahmad Parveez Ghulam Kadir.
Crude palm oil (CPO) prices are expected to be lower this year on expectations of weaker prices of other competing oils due to higher supply availability of oils and fats in the global market, as well the strengthening of the ringgit against the US dollar.
“There will be a high volume of CPO production, driven mainly by favourable weather conditions and improvement in the labour situation as the application for foreign workers has been approved in stages,” Ahmad Parveez told The Malaysian Reserve (TMR).
Meanwhile, Maybank Investment Banking Group Research (Maybank Research) said there would be some palm oil production recovery in 2023.
“Oil World, in its latest forecast, is expecting global palm oil output to grow by 2.9 metric tonnes (MT) to 80.2MT from October 2022 to September 2023.
“Similar to the start of 2022, the market is once again anticipating record supply of South American (SA) soybean planting and eventual harvest in early-2023 to bring about ample supply of global vegetable oils,” it said in its report entitled “Divergent Fortunes: Macro Deceleration vs Market Revival”.
Maybank Research said the present risk to the country’s 2023 CPO average selling price (ASP) forecast of RM3,400 per tonne is on the upside.
“Concerns are La Nina’s impact on SA harvests, lower-than-expected CPO yield and higher B35 mandate by Indonesia.
“There is still much uncertainty in the current normalised supply forecast by the market as La Nina is still here although the weather may turn more neutral by end of the first quarter of 2023 (1Q23) and it remains unclear if Malaysia-based planters will get sufficient foreign workers in 2023 to boost output,” it said.
‘Neutral’ Sector Call
Similar to 2022, it said CPO price trend would likely be a year of two halves in 2023, but with lesser volatility and intensity.
“CPO price is likely to start off well in 1Q23 at around RM4,000 per tonne due to the low yielding cycle and the present heavy rainfall disrupting operations in selected areas. CPO price is likely to stay supported until SA’s soybean harvests enter the market towards March and April 2023.
“A weaker-than-expected SA harvest may bring price support in 2Q23. Conversely, a strong SA harvest may just escalate the correction in CPO price by mid-year as palm oil is anticipated to enter its seasonal peak output in the second half of 2023 (2H23).
“We are keeping our CPO ASP forecast of RM3,400 per tonne for 2023 premised on a good SA soybean harvest and the cost of production to remain under control, assuming fertiliser prices continue to ease,” Maybank Research added.
The realisation of a higher biodiesel mandate of B35 (from B30) as mooted by the Indonesian government recently, weaker-than-expected SA soybean harvest, and high fertiliser prices are potential trigger points for upgrade to CPO ASP forecast.
“The downside to CPO price is presently buffered by above-average CPO price discounts to competing vegetable prices,” it said.
The research house anticipates merger and acquisition (M&A) activities to regain momentum in 2023. Its preferred ‘Buy’ are Kuala Lumpur Kepong Bhd (KLK) and Ta Ann Holdings Bhd (TAH).
“The KL Plantation Index has broadly mirrored the sharp correction in CPO price in 2H22. Positively, the financial positions of planters have improved sharply following good CPO prices over the past two years. This will allow planters to comfortably raise their dividend payouts if investment opportunity remains lacking.
“Within our coverage, TAH, Sarawak Oil Palms Bhd (SOP) and TSH Resources Bhd (TSH) are expected to be in net cash position in 2023. We maintain our ’Neutral’ sector call,” it said.