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Crude Palm Oil Rally Snaps On Profit-Taking

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PETALING JAYA – Crude palm oil (CPO) prices failed to stay above the RM3,000 support mark, as a wave of profit-taking quickly drove the commodity lower.

The benchmark CPO futures contract for February delivery fell to RM2,838 at the close yesterday. It had risen to an intraday high of RM3,060 a tonne on Friday before subsequently surrendering all the gains.

The ringgit’s decline to RM4.34, its lowest point this year, is a boon for the commodity’s price as the bulk of the country’s CPO output is intended for exports.

Additionally, the currency’s rapid depreciation against the greenback means that CPO prices would rise to reflect the changes on a dollar-adjusted basis.

The recent volatility across asset classes – initially sparked by the rout in emerging-market currencies following Donald Trump’s win in the United States presidential election – may explain the large deviations in CPO prices since last week.

For example, the closing CPO price of RM2,838 yesterday represents a decline of RM123 in just one day.

Last Friday, it finished the day with an RM83 gain after rising by as much as RM179.

While the rally in CPO prices is welcome news for the upstream-oriented planters, given that current prices represent the highest in four years, most analysts remain bearish on the sector.

This is because many expect CPO production to pick up again by the middle of next year.

Palm oil sector forecaster Dorab Mistry of Godrej International Ltd expects global palm oil output to rise to nearly 6.5 million tonnes in 2017, exceeding the record-breaking harvest in 2015.

According to Malaysian Palm Oil Board data, palm oil stocks in Malaysia grew 2% on a month-on-month (m-o-m) basis to 1.57 million tonnes at end-October due to weaker exports.

On a year-on-year (y-o-y) basis, palm oil stocks fell 44% as the El Nino phenomenon exacerbated the drop in output.

However, the inventory figure was below consensus expectations of around 1.7 million tonnes, which is expected to be supportive of CPO prices, CIMB Research noted in a recent report.

With a slew of plantation firms set to disclose their third-quarter earnings this month, the research house said the companies would book higher earnings due to the rally in both CPO and palm kernel prices.

“We project that the 26% and 94% y-o-y rise in CPO and palm kernel prices, respectively, should more than trump the 14% y-o-y drop in output,” said CIMB, which has a “neutral” rating on the plantation sector.

On another note, Kenanga Research expects softer demand for CPO in November.

“We expect a slight demand recovery in China for restocking purposes, but flat-to-lower demand in other countries which is in line with previous buying patterns.

“As a result, we expect the palm oil stock to fall to 1.39 million tonnes for this month, or a 3% m-o-m decline,” it said. – The Star Online


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