KUALA LUMPUR: Average local crude palm oil (CPO) delivery prices are expected to close at RM3,648 per tonne in December, according to Kenanga Research.
The firm said ample ending stocks towards year-end normally will push CPO prices downwards.
In November, the local CPO delivery prices ended higher at RM3,718.5 per tonne, and averaged monthly higher at RM3,7500 per tonne supported by optimism in local production levels.
The figures were in line with Kenanga Research's estimates for November which was at RM3,702 per tonne.
Local CPO production climbed to 1.8 million tonnes in November, up 6.8 per cent year-on-year (YoY), buoyed by higher fresh fruit bunch (FFB) received by mills at 9.0 million tonnes, thanks to the improved tonnage contribution from most of the states.
"The local average FFB yield rose by 6.2 per cent YoY to 1.54 tonne/ha, with a resilient oil extraction rate marked at 20.11 per cent on better harvesting activities in the said month.
"As outlined earlier, performance remained supportive on increased estates activities on combination of more boots on the ground (due to newly-hired foreign workers) particularly in peninsular areas aided with no strong El Nino appearance," it noted.
Palm oil exports saw weaker demand at 1.4 million tonnes, down 7.7 per cent YoY, on high inventories of major importing countries.
Kenanga Research said China, India, Pakistan and Bangladesh closing stocks have now reached pre-pandemic level at 7.4 million tonnes, 5.4 million tonnes, 3.7 million tonnes and 1.2 million tonnes respectively.
It added that CPO ending stockpiles in November continued to be high at 2.4 million tonnes, largely due to increase in supply dynamics.
"With abundant stockpiles of palm oil derivatives such as refined bleached deodorised palm oil, olein and stearin, this indicates demand for cooking oils, trans-free fats such as margarine, shortening and vegetable ghee or food products particularly were seeing softer demand.
"This has been reflected in recent quarter results, where integrated companies like Kuala Lumpur Kepong Bhd, IOI Corp Bhd and FGV Holdings Bhd downstream arm have -1.6 per cent to merely +0.7 per cent profit margin," it said.
The firm maintained a "Neutral" call on the sector with an average CPO price of RM3,800 per tonnes and RM3,600 per tonnes for 2023 and 2024.
"While we acknowledge the delayed upcoming El-Nino events (which would constrict the supply side) could be a potential catalyst for the CPO prices to remain elevated for the remainder of the months at RM3,600-3,900 per tonne.
"However, we are also concerned about its downstream product prospects, as high inflationary pressures combined with tight household spending due to high base interest rates locally and worldwide are hindering demand," it added.
