Crude palm oil (CPO) price is expected to trend lower in the third quarter (Q3) of 2020, as output level is expected to outpace demand loss from the possibility of intermittent coronavirus lockdowns, said MIDF Research.
This is despite the average CPO spot price rising 13.8 per cent month-on-month in June to RM2,420 per tonne.
MIDF Research attributed the higher spotbprice to sequential recovery in export demand from major export partners like India and China as well as the resumption of major economic activities following the easing of lockdown.
“We expect inventory level to revert to above the two million tonnes level in the coming months as the industry enters into the seasonal peak production season,” the firm said in a report today.
It said growth momentum in export demand could also experience a slowdown due to the ongoing Covid-19 outbreak in major export markets such as India and European Union (EU) as well as possibility of gradual reduction in restocking activities.
“While the exemption of export duty for Malaysian palm oil products could help to partially support demand momentum, we postulate that it would not be sufficient to offset the anticipated higher production growth.
“As a result, this will lead to a build-up in inventory level which would further weigh on the CPO price moving forward.”
In addition, MIDF Research said there was concern that the palm oil-based biofuel might lose its appeal in view of the subdued crude oil price.
It said export demand was expected to gradually taper off given the possible slower movement in restocking activities in coming months.
“We also remain concerned that there could be possible headwinds such as intermittent and extended lockdowns should the spreading and new cases of Covid-19 re-emerge, especially from India where new coronavirus cases seems unabated.
In June, exports jumped 24.9 per cent month-on-month to 1.7 million tonnes, mainly driven by higher demand from China (+55.6 per cent), India (+347.7 per cent) and Pakistan (+71.6 per cent) — the biggest monthly increase since September 2018 and higher than consensus’ estimates by 0.6 per cent.
Nonetheless, CPO export demand plunged 17 per cent year-on-year, primarily due to the fall in export demand to India (-84.6 per cent) and European Union (-10.3 per cent).
MIDF Research maintained its “neutral” call on the sector with an unchanged CPO price target of RM2,300 per tonne for 2020 and RM2,450 per tonne in 2021.
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