Crude palm oil (CPO) prices topped RM8, 000 a ton for the first time on March 1, as consumers rushed to source the oil amid the shortfall in sunflower oil caused by the Russia-Ukraine crisis.
At the close of trading, March CPO futures contract jumped RM712 to RM8, 163 a ton, while April contracts rose RM663 to RM7, 435. The benchmark May contracts gained RM463 to RM6, 762.
In a note dated Feb 28, CGS-CIMB Research said panic buying by consumers to cover the temporary shortfall in edible oil supplies from Ukraine is likely to continue until the situation improves.
Ukraine is the world’s largest producer and exporter of sunflower oil with a market share of 47% of global exports, while Russia’s share in the global exports stands at 29.9%. These two countries accounted for 60% of the global sunflower oil production in 2020 and 2021.
Sunflower oil is the world’s third-most traded vegetable oil, after palm and soybean oil.
In view of the closure of crush operations and ports in Ukraine, buyers will need to scout elsewhere to temporarily fill the gap in supply – mainly palm oil and soybean oil.
“Palm oil and soya oil are likely to benefit from this trend. As such, CPO prices in the near term are likely to stay high and above our average CPO price forecast of RM4, 100 per ton for 2022, which has not accounted for the disruption in sunflower oil exports from Ukraine,” said the research outfit,” said CGS-CIMB.
Against this backdrop, the research house said planters that sell mostly spot like Hap Seng Plantations Holdings Bhd, Ta Ann Holdings Bhd and most Indonesian planters, are likely to benefit from the spike in CPO prices.
“Planters’ share prices have reacted positively to the surge in CPO price over the past few weeks. There could be upside to planters’ 1QFY22 earnings and our CPO price forecasts. Our top planter picks in Malaysia/Indonesia/Singapore are Kuala Lumpur Kepong Bhd, Dharma Satya Nusantara Tbk and First Resources Ltd,” it added.
CGS-CIMB added, however, that the current high prices may correct significantly if a resolution is reached in the Ukraine-Russia conflict and edible oil trades resume. Other potential risks to high CPO prices are potential cuts in biodiesel mandate.
“Other concerns include the spike in fertilizer prices, which is likely to raise cost of production for oil palm producers in the second half of 2022. Russia accounts for 13% of the global trade of key fertilizer intermediaries and almost 16% of the global trade of key finished fertilizers,” said the research house.