Stay NEUTRAL; Top Picks: Kuala Lumpur Kepong (KLK), IOI Corp (IOI), and Wilmar International. Most speakers at the 2023 annual Palm & Lauric Oils Price Outlook Conference & Exhibition (POC 2023) declined to give average price forecasts for the year. Those that did had diverse views, with three being neutral to slightly bearish and three more bullish. As such the price projection range was wide – ranging between MYR3,760-5,300/tonne. We continue to advocate buying the integrated players for plantation exposure.
Most speakers declined to commit to an average price for the year, with only six speakers giving price forecasts. We note that the views were relatively more diverse this year, with speakers having different viewpoints on the impact of La Nina and Indonesia’s biofuel policy as well as the level of demand destruction caused by the oncoming economic slowdown. Of the 11 speakers, U.R. Unnithan Dr Fry and Rasheed Janmohammed had more measured bearish views, while Luc Pfisterer, Thomas Mielke and Dorab Mistry were more bullish.
We saw a trend of either relatively neutral or more bullish price projections – and nothing in between. Three speakers gave neutral to slightly bearish price projections – ranging between MYR3,760- 4,200/tonne, while three speakers gave more bullish price projections, ranging between MYR4,000-5,300/tonne.
Main factors to watch out for are the impact of La Nina on Argentinean soy output, any changes to global biofuel policies, developments on the Russia-Ukraine war and the grains corridor, Indonesian policy changes as well as the potential development of El Nino in 4Q2023.
Sustainability will continue to be the name of the game for plantation players, especially with the new EU deforestation law which will be effective from Dec 2024 as well as the scrutiny of labour practices in the industry. To comply with the EU deforestation law, planters will need to step up its efforts via implementation of industry-wide real time digital traceability, ensure collaboration of information through adoption of cloud technologies and to get regional Government agencies/regulators on board to help the industry comply at the lowest cost. Most importantly, smallholders cannot be left behind in the move to sustainability, given nearly 40% of palm oil is produced from smallholder plantations.
Maintain sector NEUTRAL. We make no changes to our CPO price assumptions of MYR3,900/tonne for 2023. The main risks to our call would be weather extremities, and policy changes in Indonesia. We continue to advocate buying integrated players like KLK, IOI, Wilmar, and Golden Agri.
