Firm CPO Prices To Continue Into 1Q23
The CPO price outlook given by the speakers during IPOC is in line with our expectations ? CPO prices should remain supported in the near term with lower-than-expected production from Indonesia and Malaysia, and strong demand from China and India. However, CPO prices would be lower yoy as: a) total vegoil production would be better yoy (especially soybean, sunflower and rapeseed) in 2023, and b) demand from China and India would be lower after stocking up in 4Q22. Maintain MARKET WEIGHT.
• During the recent Indonesia Palm Oil Conference (IPOC), we note that the speakers’ view and price forecasts are in line with ours, where we expect CPO prices to remain supported (at least until 4Q22) and then decline yoy in 2023. Industry veterans expect CPO prices to trade between RM3,500-4,500/tonne in the near term, and then trade lower yoy for 2023.
• CPO prices will remain supported in the near term, mainly buoyed by:
a) Lower-than-expected production from Indonesia and Malaysia. Most of the speakers have revised down their palm oil production forecasts for 2022 (especially for Indonesia from 3.0m tonnes to 1.5-2.0m tonnes, due to the crop losses during the export ban period).
b) Demand recovery on reasonable palm oil prices. As CPO prices have normalised, India has been aggressively buying, reaching a historical high palm oil inventory level in Oct 22. Market also expects China to reach a historical high import in Oct/Nov 22, thanks to the attractive CPO prices.
• However, CPO prices should be lower yoy in 2023, due to:
a) Strong recovery in total vegoil production in 2023. Thomas Mielke from Oil World expects total vegetable oil growth to hit +3.5% yoy for 2023 due to growth in soybean oil and rapeseed oil. Hence, total vegoil inventory in 2023 should reach the highest in five years at 30.8m tonnes (2022: 29.7m tonnes). Thomas believes the high inventory level has only been factored into CPO prices, but not soybean oil, sunflower oil and rapeseed oil prices. This may slightly weigh on CPO prices.
b) Ample soybean and oilseed supply. With higher soybean planting areas and La Nina expected to end in early-Jan 23 (which would allow Argentina’s soybean to experience normal weather), market analysts expect soybean to see a stronger yoy production growth in 2023.
c) Sluggish demand from China and India, at least up to 1Q23. With the historical high palm oil inventory in both of these countries, market expects some slowdown in the import of palm oil to allow domestic market consumption.