Tuesday 12 June 2012

Plantation Sector - Palm oil inventory down 4.5% MoM in May OVERWEIGHT


Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for May 2012. The country’s palm oil inventory continued to decline for the fourth consecutive month. Palm oil inventory in Malaysia fell 4.5% from 1.85mil tonnes in April 2012 to 1.76mil tonnes in May 2012.  

The MoM decline in CPO inventory in May was due to an expansion in exports, which compensated for an increase in palm oil production. 

In the first five months of the year, average CPO price was RM3,248/tonne, 8.9% lower than the average price of RM3,565/tonne in the same period last year. Average CPO price declined 8.4% from RM3,481/tonne in April to RM3,189/tonne in May. 

Price discount between soybean oil and CPO was relatively unchanged in May. On average, CPO price was 10.9% lower than the price of soybean oil in May. In the previous month, the price discount between the two commodities was 11.2%. Average price discount between soybean oil and CPO was 15.8% in the past five years.

Palm oil production rose 8.7% MoM but fell 20.6% YoY to 1.38mil tonnes in May. From January to May 2012, palm oil output in Malaysia amounted to 6.34mil tonnes. This was 7.3% lower than the 6.84mil tonnes of palm oil production recorded in the same period in 2011. 

We believe that palm oil production would improve in 2H2012. However, supplies may be tight due to the festive driven demand. Ramadan and Mooncake festivities are expected to fall in 3Q this year.  

Stock usage eased from 1.38x in April to 1.26x in May 2012. The fall in the stock usage ratio can be attributed to the pick-up in exports in May.

Palm oil exports expanded 4.8% MoM to 1.4mil tonnes in May 2012. In the first five months of the year, palm oil exports amounted to 6.66mil tonnes. This was 5.5% higher than the 6.31mil tonnes of palm oil exports recorded in the same period last year.

The MoM climb in palm oil exports was driven by improvements in demand from Pakistan and European Union (EU). Exports to Pakistan strengthened 80% from 97,416 tonnes in April to 175,335 tonnes in May. After being affected by a strike by transporters in Pakistan at the start of the year, exports of palm oil from Malaysia to Pakistan have recovered. 

EU bought 10.6% more palm oil from Malaysia in May compared to April. Netherlands was the main buyer of palm oil in EU, accounting for 58% of exports to the region. 

We remain positive on the plantation sector. We believe that CPO prices are near the bottom. We reckon that CPO prices would be supported by stronger demand in 3Q2012 and a seasonally lower period in 4Q2012.

Source: AmeSecurities

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