Moody’s raises CPO medium-term price sensitivity range to RM3,400-RM3,800 per tonne

25/11/2022 11:23 AM

KUALA LUMPUR, Nov 25 (Bernama) -- Moody’s Investors Service has raised its medium-term price sensitivity range for crude palm oil (CPO) to RM3,400-RM3,800 per tonne from RM2,800-RM3,200 previously, due to supply constraints and healthy demand drive.

The rating agency said the RM3,600 midpoint of its updated price range is 20 per cent higher than the RM3,000 midpoint of its previous range of RM2,800-RM3,200.

"We will use this price range in our financial projections for rated companies to assess their projected performance over this period," it said in a note dated Nov 24, 2022.

According to Moody's, CPO prices over the next 12-24 months are expected to remain higher than levels over the past 5-10 years as bad weather and weak production yields curtail supply, while wide discounts against substitute oils support demand.

It said CPO prices were extremely volatile in 2022, during which prices peaked at around RM7,600 per tonne in April, and declined over 50 per cent to under RM3,500 per tonne by September before gradually recovering to around RM4,000 in November. 

While CPO prices have fallen from an all-time high, they are still considerably higher than historical levels, it added.

In terms of supply, Moody's said, while the foreign labour shortage in Malaysia is likely to be resolved in 2023, tight labour supply over the last 12-18 months has hurt plantation and harvesting activities, which limited growth in palm oil production yields. 

"Average fresh fruit bunch yields in Malaysia have declined around one per cent to 12.7 tonne per hectare in the first 10 months of 2022 versus the same period a year ago.

"Furthermore, adverse weather is likely to disrupt production in the coming months," it said, adding the ASEAN Specialised Meteorological Centre has forecast that La Nina conditions, which cause higher-than-expected rainfall, are likely to persist in the first quarter of 2023.

On demand, Moody's said CPO's significant discount against soybean oil and sunflower oil is likely to support demand and pricing.

CPO is an alternative source of cooking oil and biofuel feedstock.


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