Plantation Sector - Palm oil inventory up 1.1% MoM in October

- Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for October 2012. Palm oil stocks inched up 1.1% from 2.48mil tonnes as at end-September to 2.51mil tonnes as at end-October 2012.

- This was 7% below market expectations of 2.7mil tonnes of inventory for October. The weaker-than-expected palm oil inventory was mainly due to a 3.3% MoM fall in  CPO production while at the same time, palm oil exports expanded by 16.2% MoM in October. 

- It appears that the country’s palm oil production had peaked in September. Going forward, palm oil inventory is expected to ease underpinned by the low output season in November and December.  

- Average CPO price was RM2,244/tonne in October, 18% lower than the average of RM2,720/tonne recorded in September. From January to October 2012, CPO price averaged RM2,999/tonne. Based on the latest prices, the price discount between soybean oil and CPO is about 30.7% versus the five-year average of 16.7%.  

- The weak production of palm oil in October could be attributed mainly to a 6.2% MoM decline in output in Peninsular Malaysia. Palm oil production in Sabah and Sarawak was relatively flat MoM in October. 

- CPO production amounted to 15.1mil tonnes in the 10 months of the year, 4.3% lower than the same period in 2011. The Malaysian government has forecast palm oil output of 18.4mil tonnes for 2012F.

- The 16.2% MoM expansion in palm oil exports in October was underpinned by positive demand from Pakistan and European Union (EU).  

- Palm oil exports to Pakistan surged 108% MoM in October while the EU bought 70.8% more palm oil compared to September. Palm oil exports amounted to 14.2mil tonnes from January to October 2012, 3.4% YoY lower.

- Intertek, which is an independent cargo surveyor, reported that palm oil shipments rose 15.6% in the first 10 days of November compared to the same period in October. 

- Stock usage slid from 1.6x in September to 1.4x in October. It appears that the policy of tax-free CPO export quota has helped cushioned palm oil inventory. 

- Closing inventory of palm oil in crude form shrank 2.7% from 1.6mil tonnes as at end-September to 1.56mil tonnes as at end-October.  

- We maintain a positive stance on the plantation sector for now. We believe that palm oil inventory would ease as plantation companies continue to ship out tax-free CPO before the quota system is abolished in 2013F. Palm oil production in Malaysia and Indonesia are also expected to soften in November and December due to the seasonal factors.    

Source: AmeSecurities