Plantation Sector - Palm oil inventory up2.3% MoM in November OVERWEIGHT

- Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for November 2012. Palm oil inventory inched up 2.3% from 2.51mil tonnes as at end-October to 2.56mil tonnes as at end-November. This was within market expectations. 

- The MoM increase in palm oil inventory in November was due to a fall in exports, which was more than the rate of decline in palm oil production. 

- The build-up in inventory in November was mainly due to a 24% MoM climb in CPO inventory in Sabah. CPO inventory in Peninsular Malaysia remained relatively flat in November versus October while palm oil inventory in crude form declined 6% MoM in Sarawak. Inventory of processed palm oil in Malaysia shrank 5% MoM in November.

- Average CPO price was RM2,214/tonne in November 2012, which was relatively unchanged compared with RM2,244/tonne in October. 

- From January to November 2012, average CPO price was RM2,928/tonne. This was 11% lower than the average of RM3,298/tonne in the same period last year.

- Based on the latest prices, the discount between CPO and soybean oil is about 35% or US$398/tonne. Soybean prices have been rising in the past couple of days due to risk that production would be affected by unfavourable weather in South America. 

- Argentina has been facing excessive rains while Brazil has been experiencing dry spells.

- Palm oil production in Malaysia declined 2.6% MoM but expanded 16.0% YoY to 1.89mil tonnes in November. Improvements in CPO output in Sabah were offset by declines in production in Peninsular Malaysia and Sarawak.

- Sabah recorded a 6% MoM increase in November but CPO production in Peninsular Malaysia slid 7% MoM. Sarawak’s CPO output eased 5% MoM in November.  

- In line with the declining output, exports of palm oil from Malaysia also fell 5.7% MoM in November. After a 16.2% MoM increase in exports in October, demand in November slowed. 

- The lower demand was led by the European Union and India, which bought 29% to 41% less palm oil in November compared with October. Exports of palm oil to China rose 89% MoM in November while Pakistan and the US bought 32% to 65% more palm oil.  

- We maintain a positive stance on the plantation sector. We believe that CPO prices will be supported by softening palm oil production resulting from a lower output in the coming months.    

Source: AmeSecurities