CPO price outlook from virtual IPOC 2021

■ Speakers at IPOC 2021 were positive on CPO prices for the rest of 2021 but differed regarding when and by how much CPO prices could drop in 1H22F.
■ Most bullish views projected CPO to trade at RM5k-5.4k/tonne till Feb 2022 while the bearish camp forecast prices to fall to RM4.3k/tonne.
■ We believe the market prices in a conservative average CPO price forecast of between RM3k and 3.6k per tonne for 2022F (CGS-CIMB 2022F: RM3.6k).

CPO prices projected to decline in 2022 but…

● We attended the 16th Indonesian Palm Oil Conference (IPOC), which was held virtually, on 1-2 Dec 2021. The consensus view was that crude palm oil (CPO) price was likely to decline from the current spot price (RM5.1k/tonne) in 2022. However, the speakers had different views regarding when prices would drop and by how much. This is broadly in line with our CPO price forecasts of RM4,270/RM3,600/RM3,240 for 2021F/2022F/2023F.

Price predictions by speakers at virtual IPOC 2021

● James Fry, chairman of LMC International, revealed that tight supplies of palm oil and rapeseed oil, slow growth in meal use and soy oil output as well as a few signs that high prices had hit food demand led to current high palm oil prices. He saw two factors moderating CPO price till mid-2022: rising interest rates, taking the froth from commodity markets, and hesitancy by a major biodiesel user. He saw a small drop in
the CPO-Brent premium until palm oil and softseed outputs recovered in the 2H2022.

● Abdul Rasheed Janmohammed, Pakistan Edible Oil Refiners Association chairman, said palm oil futures must drop to RM4,300 to RM4,500 per tonne to attract demand. He expected CPO prices to see some correction in the coming months.

● Togar Sitanggang, Vice Chairman III of the Indonesia Palm Oil Association (GAPKI), saw Indonesia’s 2021/2022 CPO production moving -1%/+3% (-0.4m/+1.4m tonnes) to 46.6m tonnes/48m tonnes from 47m tonnes in 2020. He projected weaker output growth from Indonesian estates due to lack of new planting, adverse weather and low use of fertiliser. He forecast Indonesia’s end palm oil stock for 2021F/2022F to be 3.84m tonnes/1.98m tonnes vs. 4.9m tonnes in 2020. He also forecast CPO price to
stay above US$1,000 per tonne in 1H2022F and potentially for the rest of 2022F.

● Thomas Mielke, editor and CEO of Oil World, said palm oil prices may have peaked and were likely to trade lower in the coming months (Jan-June 2022). He projected global palm oil output to rise by 3.5-3.8m tonnes in 2021/22, accelerating from the 1.4m tonne rise for the same period a year earlier. The increase in global palm oil supplies will be driven by Malaysia (+1-1.1m tonnes), Indonesia (+1.7-1.9m tonnes) and other countries (+0.8m tonnes). He also forecast higher oilseed crushing activities for sunflower and soybeans, which would lead to lower edible oil prices in 2022. The key potential bullish factors that will keep prices higher for longer than his projections are weather problems (La Nina risks) in the next 2-3 months, a prolonged labour shortage situation in Malaysia, reserved farmers selling and biofuel policies.

● Dorab Mistry, director of Godrej International, said palm oil futures may skyrocket to a record RM5,400 per tonne in early next year, boosted by high export levies in Indonesia and tightness in palm oil supply, which could peak in Jan-Feb 2022. He forecast CPO to trade at RM5,000-5,400 per tonne through Feb before easing in March 2022. This is more bullish than his prediction of RM4,000-4,400 for Oct 2021-
Feb 2022 at the Globoil conference in Sep 2021. He cut his 2021 estimate for Malaysia’s palm oil production by 0.2m tonnes to 18m tonnes and predicted production for 2022F to rise to 19m tonnes if the government alleviated the acute labour crunch from late-May. For Indonesia, he believed output will rise in 2022F by at least 1m tonnes vs. 2021. He also believed palm oil’s high prices will finally end from April 2022 and slide from RM4,800 to RM4,000 over April-Sep 2022. He added that critical swing price factors are palm oil output and soybean production in South America.