Wednesday 11 July 2012

Plantation Sector - Palm oil inventory down 4.8% MoM in June OVERWEIGHT


   Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for June 2012. Palm oil inventory in Malaysia continued to fall. Stocks stood at 1.7mil tonnes as at end-June 2012, 4.8% lower than the 1.79mil tonnes as at end-May 2012. The country’s palm oil inventory of 1.7mil tonnes for June was below consensus estimate of 1.77mil tonnes.

The MoM decline in palm oil inventory was due to the strength in exports, which outpaced palm oil production in June.

   In the first half of this year, average CPO price was RM3,199/tonne, 9.1% lower than the average price of RM3,518/tonne recorded in 1H2011. Average CPO price was RM2,956/tonne in June 2012, 7.3% lower than the average of RM3,189/tonne achieved in the preceding month.

   Price discount between soybean oil and CPO widened from 10.9% in May to 15.3% in June 2012. On average, CPO price was US$180/tonne lower than soybean oil price in June 2012. In the past five years, average price discount between the two commodities was 16%.

   Palm oil output in Malaysia improved 6.3% MoM but shrank 16.1% YoY to 1.47mil tonnes in June 2012. From Jan to June 2012, palm oil production fell 9.1% to 7.81mil tonnes compared to the same period last year.  

It remains to be seen if Malaysia’s palm oil production would meet industry experts’ forecast of 18.6mil tonnes to 19mil tonnes for the full year.

   There is a possibility that the country’s palm oil output might not meet expectations in 2H2012 due to the high-base effect last year. 

   Stock usage weakened from 1.27x in May to 1.11x in June underpinned by positive exports and a decline in palm oil inventory. 

   Palm oil exports rose 8.7% MoM but decreased 3.4% YoY to 1.53mil tonnes in June 2012. In the first half of the year, palm oil exports expanded 3.8% YoY to 8.2mil tonnes. 

   The MoM climb in exports was driven by China, which bought 38.2% more palm oil in June. Exports to India and Pakistan also strengthened 28.5% and 15.4% MoM, respectively, in June.

Positive demand from China, India and Pakistan more than compensated for a 23.1% MoM decline in demand from the European Union. 

We remain OVERWEIGHT on the plantation sector. We reckon that CPO prices are on a recovery phase underpinned by resilient soybean prices and festive-driven demand for palm oil in 3Q2012.   

Source: AmeSecurities

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