RHB Group Research’s analysts Hoe Lee Leng, Christopher Andre Benas, Sean Chew and the Singapore research team have maintained “neutral” on the plantation sector, following the Indonesian government’s decision to reduce the maximum threshold for export levies.
On June 22, the Indonesian government reduced export levies for crude palm oil (CPO), setting the minimum at US$175 ($235.18) per tonne from US$255 per tonne.
To put things in context, CPO prices are above US$1,000 per tonne.
The Indonesian government has also raised the minimum threshold to US$750 per tonne from US$670 per tonne. This will increase by US$20 per tonne for every US$50 per tonne increase in CPO price, while the levy will increase by US$16 per tonne.
To the team, this is positive for planters with exposure to Indonesia, but it may be “too little too late”, given the 20% decline in crude palm oil (CPO) prices in the last one month.
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CPO prices have declined “significantly” due to the drop in soybean prices, which was brought about by the potential change in biofuel policy in the US.
While no change has been taken pertaining to the policy, speculators have reacted accordingly, notes the team.
As June 22, soybean prices stood 6% lower over the last seven days.
“We expect more volatility ahead for soybean prices, although on a fundamental basis, we expect it to continue on a more consistent downward trend once US crops are harvested in 3Q2021,” they write.
Wilmar International remains the team’s top pick since its report on June 11. The team has rated the counter at ‘buy’ with a target price of $6.45.
“We continue to uphold our view that CPO prices will moderate in 2H2021, and maintain our 3,200 ringgit ($1,032.57) per tonne CPO price assumption for now.
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Shares in Wilmar closed 3 cents lower or 0.7% down at $4.50 on June 25.
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