THE BUZZ
Malaysia’s palm oil shipment for the first 20 days of October 2012 rose by 16.7% over the same period in September, according to cargo surveyor SGS. Shipment to India and China were weaker by 34.0% and 7.7% respectively but this was more than mitigated by
strength in shipment to the EU and other countries.
OUR TAKE
Good export number. We view the increase in shipment number as positive, as it represents significant m-o-m growth in light of the current pessimism on demand. Should the 16.7% m-o-m growth be sustained for the whole month, Malaysia’s shipment will reach 1.757m tonnes and YTD export will reach 14.214m tonnes, down 3.5% against last year.
Insufficient to reduce inventory. In the worst case scenario, assuming a 5% m-o-m increase in production to 2.104m tonnes, inventory will rise further to 2.698m tonnes. In the best case scenario of production falling by 5% m-o-m, inventory will still rise to 2.498m tonnes compared to 2.481m tonnes as at end-September.
Downside limited by biodiesel support. We doubt that crude palm oil (CPO) prices have much room to fall given that it is already trading at close to parity with crude oil, which makes biodiesel viable. CPO typically trades at a premium of no less than USD10 per barrel and in the past year, the norm has been within the USD20-USD40 range. However, the premium is now at only USD5.80 per barrel. Assuming a return to USD20 premium per barrel, CPO will rise by RM317 per tonne from here while a return to USD40 premium will see CPO price advancing by RM764 per tonne.
Maintain Overweight. The industry is suffering from “indigestion” due to a surge in production in the peak season and restrictive export duty, resulting in ballooning inventory. We believe the tax issue will be addressed with Malaysia’s new export duty
effective Jan 2013 and the nationwide rollout of biodiesel. Prices could start to normalize ahead of the new year.
Malaysia’s palm oil shipment for the first 20 days of October 2012 rose by 16.7% over the same period in September, according to cargo surveyor SGS. Shipment to India and China were weaker by 34.0% and 7.7% respectively but this was more than mitigated by
strength in shipment to the EU and other countries.
OUR TAKE
Good export number. We view the increase in shipment number as positive, as it represents significant m-o-m growth in light of the current pessimism on demand. Should the 16.7% m-o-m growth be sustained for the whole month, Malaysia’s shipment will reach 1.757m tonnes and YTD export will reach 14.214m tonnes, down 3.5% against last year.
Insufficient to reduce inventory. In the worst case scenario, assuming a 5% m-o-m increase in production to 2.104m tonnes, inventory will rise further to 2.698m tonnes. In the best case scenario of production falling by 5% m-o-m, inventory will still rise to 2.498m tonnes compared to 2.481m tonnes as at end-September.
Downside limited by biodiesel support. We doubt that crude palm oil (CPO) prices have much room to fall given that it is already trading at close to parity with crude oil, which makes biodiesel viable. CPO typically trades at a premium of no less than USD10 per barrel and in the past year, the norm has been within the USD20-USD40 range. However, the premium is now at only USD5.80 per barrel. Assuming a return to USD20 premium per barrel, CPO will rise by RM317 per tonne from here while a return to USD40 premium will see CPO price advancing by RM764 per tonne.
Maintain Overweight. The industry is suffering from “indigestion” due to a surge in production in the peak season and restrictive export duty, resulting in ballooning inventory. We believe the tax issue will be addressed with Malaysia’s new export duty
effective Jan 2013 and the nationwide rollout of biodiesel. Prices could start to normalize ahead of the new year.
Source: OSK
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