Brokers' take

Bumitama Agri | Neutral (downgraded) Dec 10 close: S$0.635 Target price: S$0.60 RHB Research, Dec 10

Crude palm oil (CPO) prices have surprised us and we believe the market is on the downside, having fallen to a low of 1,717 ringgit (S$563.78)/tonne on Nov 21, before recovering slightly to 1,800 ringgit/tonne currently. We believe the sudden drop in prices was due to the continued rise in CPO stock levels in Malaysia to 2.72 million tonnes in October and the decline in crude oil prices from a high of US$84/barrel one month ago to US$54/barrel currently.

CPO stock levels should start declining soon as we enter the low season of production. That, and the increased demand contributions from biodiesel and India in 2019, should start to have a positive impact on prices come Q1 2019. However, while we expect some form of price recovery in Q1 2019, CPO prices should not jump significantly as stock levels will need some time to normalise. In addition, external risks still abound, in the form of trade war uncertainties, crude oil prices and trade policies by producing and consuming countries.