All In Agreement For Higher Prices In 1H16
The general tone of the speakers at the 2016 Palm and Lauric Oils Conference (POC) was bullish. It was a rare occurrence to witness the three “stars” of the POC unanimously bullish on the CPO price direction. Their CPO price forecasts, up to 1H16, had ranged between MYR2,700-3,200/tonne. This is in line with our view that 1H16 would see stronger prices vs 2H16, on the back of the delayed impact of the El Nino. We maintain our MYR2,700/tonne average price for the year and our OVERWEIGHT recommendation. Top Picks include First Resources, Genting Plantations and London Sumatra.
¨ A bullish overtone. During the POC, many speakers projected that the El Nino impact would be significant, while the Indonesian biodiesel mandate increased the usage of palm oil further. Most speakers also made references to the disconnect between CPO and crude oil prices; most also believed that 2H16 would see a period of lower prices vis-à-vis 1H16.
¨ Average price forecasts in line with our projections. The CPO price projections made by the speakers ranged between MYR2,200 and MYR3,200/tonne, although we highlight that the three “stars” of the POC - Thomas Mielke, Dr James Fry and Dorab Mistry, were unanimously bullish, with CPO price forecasts ranging between MYR2,700-3,200/tonne. We concur with the view that CPO prices would be higher in 1H16 vs 2H16, as we expect the delayed impact of the El Nino to hit productivity in 1Q, 2Q and 3Q, before recovering in 4Q16. We maintain our MYR2,700/tonne average price projection for 2016. Most speakers shared with our belief that although the Indonesian biodiesel demand is a significant factor to consider, implementation is key.
¨ Risks include: i) significant change in crude oil price trend, ii) weather abnormalities, iii) change in emphasis on implementing global biofuel mandates and trans-fat policies, iv) significant changes in trade policies of vegetable oil importing or exporting countries, and v) sharper-than-expected global economic slowdown
¨ OVERWEIGHT maintained. We make no change to our OVERWEIGHT stance on the sector, with our Top Picks being First Resources (SG:EB5)
, London Sumatra, ($LSIP)
and Genting Plantations