“We foresee that production will improve and eventually lead to the easing of (crude palm oil) supply tightness in the second half of the calendar year 2021.

“Nonetheless, we opine it would not be significant (this year) in view of unresolved labour shortages due to border closure,” it said in a note today.

The August 2021 production level was higher by 11.8% month-on-month to 1.70 million tonnes (from 1.52 million tonnes in July 21) as local palm oil has already entered into its usual peak production period of July-October, on the back of better weather conditions.

“We expect production levels to continue to improve in the coming months due to favourable weather, and relaxations of movement control order restrictions nationwide,” it said, adding that the improved production would likely soften the crude palm oil (CPO) price to RM3,200 per tonne for 2021.

On the demand front, the resumption of economic activities in India and China will likely encourage replenishing activities.

As for the inventory level, MIDF Research expects stockpiles to improve and hover around 1.7 million tonnes to two million tonnes in the coming months.

Given the industry’s outlook, the research house has maintained its positive call on the plantation sector, an opinion echoed by Maybank Investment Bank.

Meanwhile, RHB Investment Bank, which set an underweight call on the sector, believed that with peak CPO crop and the United States soybean crop coming out in the fourth quarter of 2021, there will be a moderation of prices in the medium term.

It also said the environmental, social and governance (ESG) discount by the companies is holding back the share price performance.

“We believe ESG will remain a dampener on valuations for the medium term, at least until some of the big-cap players can work through their forced labour issues,” it said.