KUALA LUMPUR: A strong palm oil output recovery is expected in the second half of this year (H2) from good rainfall, the normalisation of fertiliser application and support from better prices.
Palm oil supply was tight in 2020 due to biological tree stress. However, Maybank IB Research anticipates 2021 to be a year of recovery for palm oil supply, especially in H2 on the back of the seasonality reason.
Production is seasonally weakest in the first quarter, and typically peaks in either the third or fourth quarter of the year, it added.
“As seasonally higher H2 output becomes more apparent by mid-year, crude palm oil (CPO) prices will gradually come off as the present near price parity between CPO and US soybean oil, its key competing vegetable oil, is not sustainable when the palm oil and global vegetable oil supplies become ample again, ” it said in a report.
Meanwhile, in the first quarter of this year, Maybank IB Research noted that CPO prices would start on a “high note” due to subdued brought-forward stockpile and a low production period.
Having said that, the price of CPO is expected to be lofty in the first quarter of this year on the back of short-term palm oil constraints in global supplies and uncertainties of the La Nina impact on South American crop.Maybank IB Research said the ongoing weather concerns present an upside risk to its average selling price forecast of CPO of RM2,500 per tonne.
“Our forecast has yet to factor in any significant crop failure in the ongoing South American soybean planting season, crude oil price staging a massive rally, and 2021’s palm oil output coming in below-expectations, ” it said.
The research house is maintaining a positive call on the regional plantation sector as small and mid-cap stock prices have lagged the CPO price rally.
In 2020, the CPO price made a V-shaped recovery to above RM3,000 per tonne after the price plunged to around RM2,000 per tonne in early May 2020 due to the Covid-19 pandemic.