NEUTRAL on the plantation sector while CY21E CPO price of RM3,000/MT remainsfor now.Key speakers of Virtual POC 2021 were bearish on CPO price. Mr. Thomas Mielke believes the peak has occurred (or will occur in 4 weeks), while Mr. Dorab Mistry thinks that edible oils’ price curve post Apr-May is downwards. Most speakers forecast CPO price of >RM3,000/MT except for Mr. Dorab (CPO price to bottom at RM2,700/MT – July onwards). We concur with the bearish view and think historical trends (peak in 1QCY) may prevail as market participants sell ahead of the expectedprice decline. Meanwhile, uncertainties on biodiesel policies remain as we believe Indonesia’s current biodiesel levy and export tax structure may not be adequate to support its B40 ambition, should price moderate to 33,000 visitors from across the global oils and fats industry. We returned maintaining our stance of softer CPO price in the coming months. Still a NEUTRAL call on the sector, while our CY21 CPO price forecast of RM3,000/MT remains for now.

Speakers were in the bear camp for CPO price. During the 2-day conference, all speakers agreed on the general direction for CPO price – down (refer to Exhibit 2 & 3 for key speakers’ remarks). Where they disagreed were the timing and the severity of the correction. Some speakers believe that prices will be well supported in 1HCY21 and will only fall in 3Q-4QCY21 as production picks up, while others believe that prices will start to correct in 2QCY21. Mr. Thomas Mielke (CEO & Chief Editor of Oil World) believes we have seen the peak, and if not, it will happen in the next 4 weeks. According to Mr. Dorab Mistry (Director of Godrej International), the edible oils’ price curve post AprMay is downwards and prices may fall dramatically in Jul-Aug if rainfall is adequate in North America which will address soybean supply concerns. Meanwhile, CPO price forecasts by speakers were mostly >RM3,000/MT (at c.RM3,400/MT) except for Mr. Dorab Mistry’s view that CPO price (July onwards) will bottom at RM2,700/MT. Meanwhile, Dr. James Fry (Chairman of LMC International) believes EU-CPO Brent spread should drop from a crazy USD700/MT to USD450/MT by 4QCY21, implying CPO price of c.RM3,300/MT.

We are in camp bear too. We concur with the general view that current prices are unsustainable. However, we think prices are likely to correct in the next 1-2 months, instead of in 2HCY21 when production picks up. From our study (Exhibit 1), we observed that the peak of major CPO price rallies all occurred in 1QCY. Aligned with Mr. Thomas Mielke’s view, we believe that the historical trends (peak in 1QCY) will prevail as market participants digest the views of key speakers in the conference and sell ahead.

Source: Kenanga Research - 25 Mar 2021