The research firm said lower near-term palm supply concerns are rising due to a seasonally low palm oil production cycle and the onset of La Nina.

“The favourable palm oil-gasoil (POGO) spread and CPO’s wide discount against soybean oil will encourage palm oil consumption,” HLIB said in a note today.

“The upward momentum in CPO prices will also be buoyed by uncertainties on the fate of the Black Sea grain corridor, set to expire on Nov 19, 2022, and easing concerns on Indonesia’s palm oil stockpiles,” it added.

However, it believes the CPO price will start to trend down from the second quarter of 2023 (Q2 2023) on the back of better supply visibility for vegetable oils arising from easing labour shortage in Malaysia and an absence of weather anomalies.

The research house said the price will also be weighed down by heightening global recession risk and a build-up in inventories in key palm oil importing countries.

“We lower our CPO price assumptions for 2022 and 2023 to RM5,050 per tonne from RM5,500 previously, and RM4,000 per tonne from RM4,500 earlier, mainly to reflect weaker CPO price in Q3 2022 and better supply visibility and the absence of demand catalyst,” HLIB said.

“CPO price assumption for 2024, on the other hand, remains unchanged at RM3,800 per tonne. Earnings forecasts of individual planters, arising from lower CPO price assumptions, will be reviewed in the upcoming results season,” it said.

HLIB Research maintains its “overweight” stance on the sector, supported by commendable valuations. Its top picks for the plantation sector are Kuala Lumpur Kepong Bhd (KLK) and IOI Group.