COMMODITIES started off the year with a bang as the Bloomberg Commodity (BCom) Index, which tracks the prices of 23 raw materials, reached new highs since 2011 and touched 97.51 points on July 29.

On Aug 20, however, the index slumped 7% to 91.16 points, on anticipation of slower economic growth amid expectations of a reduction of asset purchases by the US Federal Reserve. It has since made up some lost ground, closing at 95.79 points last Tuesday, as prices of heavyweight commodities that make up the index, such as oil and gold, picked up steam.

“Commodity prices have continued to climb during the past three months, but while the rally during the first part of 2021 was synchronised across all sectors, we are now seeing some sectors sticking out relative to others,” Saxo Bank head of commodity strategy Ole Sloth Hansen tells The Edge.

Here, we take a look at the performance of some of these commodities over the past three months.

Brent crude, CPO prices continue to climb

The prices of two commodities vital to the Malaysian economy — Brent crude oil and crude palm oil (CPO) — continued to display resilience amid the pandemic. Brent crude oil prices have increased 39% year to date, to US$72 per barrel last Monday. Compared with three months ago, the price of the energy commodity has inched up by a marginal 1%.

Saxo Bank’s Hansen says Brent crude oil has settled into a wide mid-US$60 to mid-US$70 range, with continued demand concerns related to the Covid-19 pandemic offset by Opec+ keeping a lid on production increases to ensure that the market remains balanced but not oversupplied.

“We maintain a positive outlook for crude oil in the belief that global consumption will continue to recover and Opec+ will continue to actively manage supply to support prices. Key risks to this assumption is a renewed surge in Covid-19 cases and a stronger-than-expected recovery in non-Opec+ production, especially from US shale producers that have shown a great deal of discipline by turning their focus to profitability instead of the previous pump-baby-pump attitude.

“Provided we see no major surprise from these two, I see Brent making an attempt to reach US$80 per barrel before year-end, before settling into a US$70-to-US$80 per barrel range in 2022,” says Hansen.

AmInvestment Bank in a Sept 7 note says it is maintaining its forecasts for oil prices in 2021/22 at US$65 to US$70 per barrel. The firm has an “overweight” call on the Malaysian oil and gas sector, with Dialog Group Bhd and Sapura Energy Bhd among its top picks.

Prices of CPO futures contract have shot up 8% in the past three months, from RM4,123 per tonne on June 8 to RM4,435 per tonne last Monday.

Singapore-based independent online publisher of palm oil market news Palm Oil Analytics owner and co-founder Dr Sathia Varqa says CPO prices, which had eased in July after hitting an all-time high of RM4,524 per tonne in May, have started to trend higher again in August.

“This was mainly on external support of firm soybean oil prices and a lower annual palm production outlook. CPO prices are highly volatile this year, dragged higher by weak supply and a sporadic rise in export demand,” he adds.

Sathia expects CPO futures to remain above RM4,000 per tonne until year-end, driven by the rebound in September exports and relatively better export pricing compared with main competitor Indonesia, which hiked its export levy on September shipments.

In a Sept 7 outlook on the plantation sector, Hong Leong Investment Bank Research (HLIB Research) says the share price of plantation companies, which are represented by the Bursa Malaysia plantations index, still lags behind the rally in CPO prices, owing to lingering environmental, social and governance (ESG) concerns within the sector, and doubts over the sustainability of CPO prices.

“We believe the concerns on ESG issues have already been reflected in the sector’s valuations, as most players — particularly the large ones — have been putting efforts into rectifying these ESG issues,” the firm says, noting that multi-year low levels of foreign shareholdings in these companies also underscore the concerns.

Nevertheless, HLIB Research upgraded its sector call from “neutral” to “overweight”. IOI Corp Bhd, Kuala Lumpur Kepong Bhd, Sime Darby Plantation Bhd and TSH Resources Bhd are among its top picks.

“While we maintain the view that current high CPO prices will not [be sustained] over the longer term, we upgrade the sector to ‘overweight’, as we believe a rerating is warranted on the sector’s palatable valuations and good near-term earnings prospects arising from elevated CPO prices,” the firm says.