Palm oil stockpiles expected to drop as much as 6%

by **Cals** Wed 15 Jan 2014, 10:21

Business & Markets 2014

Written by Shalini Kumar of theedgemalaysia.com

Wednesday, 15 January 2014 09:54

KUALA LUMPUR: Malaysian palm oil stockpiles are expected to fall as much as 6% this month from December’s 1.985 million tonnes, said analysts.

“Malaysia’s stock level for December 2013 came in at 1.99 million tonnes, 4% above market’s and our expectation of 1.92 million tonnes. The culprit behind the higher than expected inventory is the lower local disappearance which unexpectedly declined 21% month-on-month [m-o-m] to 177,000 tonnes,” said Kenanga Research in a report on Monday.

“While this could be a sign that Malaysia’s biodiesel consumption has slowed down, we are not overly concerned as Indonesian biodiesel usage remained high as evidenced by very low palm oil imports by Malaysia at 24,574 tonnes. The fundamental factor of strong Indonesian biodiesel demand should be supportive to crude palm oil (CPO) prices,” it said.

The research house is expecting January inventories to decline 2% m-o-m to 1.95 million tonnes which, it said, should be positive for CPO prices.

It is maintaining an “overweight” call on the plantation sector with its current 2014 average CPO price forecast of RM2,800 per tonne unchanged. Its top picks are IOI Corp Bhd and TSH Resources Bhd.

HwangDBS Vickers Research Sdn Bhd expects stockpiles to decline 6% m-o-m to 1.87 million tonnes by end-January.

“The seasonal decline in fresh fruit bunch yields was more pronounced in Peninsular Malaysia than in Sabah and Sarawak. Considering that the year-on-year [y-o-y] drop had also widened since November, we expect Malaysia’s overall January output to drop by a steeper 14% m-o-m to 1.429 million tonnes,” it added.

In December 2013, Malaysia’s palm oil output dropped 10% m-o-m to 1.667 million tonnes. HwangDBS expects January exports to fall 6% to 1.422 million tonnes.

Still, it believes CPO prices may be close to bottoming, projecting a 2014 average CPO price of RM2,570 per tonne.

Alliance Research Sdn Bhd said inventories have a chance of declining in the coming two to three months as production is slated to trend further downwards.

It expects CPO prices to remain in the range of RM2,500 to RM2,800 per tonne.

“We view that prices will be capped at below RM2,800 per tonne in the interim as exports are not expected to be y-o-y stronger. This is because of ample stocks of competing oilseeds in the market, like sunflower oil, rapeseed and soybean oil which reduce overall global dependency on palm oil,” it said.

Alliance Research has a “neutral” call on the sector and all the stocks under its coverage.

For the full year 2013, Malaysia showed a record production of 19.2 million tonnes, up 2.3% y-o-y, driven by a stronger first half due to a change in cropping pattern.

This article first appeared in The Edge Financial Daily, on January 15, 2014.