KUALA LUMPUR: The current high crude palm oil (CPO) prices is unsustainable given narrowing discount between CPO and soybean oil, impending seasonal palm output recovery, and the absence of notable demand-push catalyst.

Hong Leong Investment Bank Bhd research said CPO prices have appreciated by 23.7 per cent to RM4,511 metric tonne bringing year-to-date (YTD) to average RM4,042 metric tonne on the back of weak production prospects and tight supplies.

The research firm said CPO's narrowed price discount against soy oil (US$110 per metric tonne (mt) currently vs. 6-month average of US$258/mt), palm's impending seasonal output recovery, and the absence of notable demand-push catalyst indicate that current high CPO price will not sustain over the longer term.

It maintained its 2024-2025 CPO price assumptions of RM4,000 per tonne and RM3,800 per tonne, with the view that CPO price will start tapering off when palm's seasonal output recovery takes place (expected by April/May 2024).

"We also maintained a neutral stance on the sector. "For exposure, our top picks are IOI Corp and Hap Seng Plantations Holdings Bhd with buy calls with target price of RM4.66 and RM2.06, respectively," said the research house in a note today.

The United States Department of Agriculture's (USDA) prospective planting report states that US farmers intend to shift towards more soybean over corn areas.

HLIB research said this is possibly due to a downtrend in corn prices amid ample global supplies and sluggish demand for US exports.

The latest planting intention for soybean, coupled with the 9.0 per cent year-over-year increase in USDA's soybean inventory signals sufficient soybean supply in the coming marketing year, hence capping near-term prices of soybean and CPO.