KUALA LUMPUR (April 16): MIDF Research expects crude palm oil (CPO) prices to moderate in the second quarter of 2024 (2Q2024), yet predicts a month-on-month (m-o-m) increase of 4.6% to RM4,410.5 per tonne in April due to mild El Niño events.

In a note on Tuesday, the house said CPO price delivery increased by 7% m-o-m to RM4,285 a tonne in March, and the monthly average went up 6.7% m-o-m (1.3% year-on-year or y-o-y) to RM4,215.5 a tonne, riding on El Niño risks.

“We estimated March’s price to be flattish at RM3,900 per tonne level. However, there is now a concern regarding the potential impact of dry weather conditions on this estimate,” the research house said.

Moving forward, the research house anticipates CPO prices to soften to approximately RM3,946.70 per tonne in May, as uneven weather begins to normalise.

MIDF Research also anticipates production to improve in 2Q2024, ahead of an anticipated mild La Niña in the second half of 2024.

It said the months of May and June are expected to see a combination of dry and rainy weather patterns, which will benefit palm trees, as they near the end of their pollination cycle, with estate operations remaining robust, leveraging the enhanced productivity of newly recruited foreign labour.

Malaysia’s CPO production in March 2024 remained decent at 1.39 million tonnes, versus 1.29 million tonnes in March 2023, due to contributions from most of the states, particularly in Peninsular Malaysia (+19.1% y-o-y), as it benefited from improved foreign labour productivity.

However, it noted that production in Sabah (-9.3% y-o-y) was impacted by dry weather.

MIDF Research said fresh fruit bunches received by mills also surged to 7.2 million tonnes, with a higher yield of 1.17 tonne per hectare, while the oil extraction rate was muted at 19.8% on low crop seasonality in most of the states.

As such, the house maintained its 'neutral’ call on the sector, with an average CPO target price of RM3,600 a tonne for the year.

“We deem it is the best time to lock in the profits for our top picks, such as Ta Ann Holdings Bhd, Kuala Lumpur Kepong Bhd, and IOI Corp Bhd, as we anticipate the increase in share prices to gradually decline towards the end of the quarter, prompting a shift in trading strategy,” it said.

Meanwhile, Hong Leong Investment Bank Bhd believe stockpiles will resume their uptrend from April 2024, as production will likely remain on an uptrend due to seasonality, while exports will likely weaken due to the absence of festive-driven demand and palm oil’s weak price competitiveness over other competing oils.

“We maintain our CPO price assumptions of RM4,000 a tonne [for 2024] and RM3,800 a tonne [for 2025], as well as our ‘neutral’ stance on the sector.

“For exposure, our top picks are IOI and Hap Seng Plantations Holdings Bhd,” the house said.