We see a silver lining in Malaysian Palm Oil Board (MPOB)’s stats released yesterday. Inventory hit a record 2.56m tonnes but production weakened amid a seasonal downcycle, closely followed by an inventory downcycle. Local consumption strengthened even after October’s strong numbers, indicating that conversion to biodiesel may have begun ahead of the nationwide rollout in January. We are revising lower our CPO price assumptions from RM3,000 previously to an indicative RM2,870 for CY12, and from RM3,500 to RM2,750 for CY13. Maintain OVERWEIGHT.
Demand holds up for edible oil. China’s edible oil imports jumped 27.1% YTD while India’s imports climbed 21.6% for the first 10 months of the year. This indicated that edible oil consumption was stable despite lingering demand concerns due to the weak global economy. However, there appeared to have been a shift in demand to soybean oil, perhaps due to anticipation of a soybean oil shortage. This led to palm oil trading at a more than USD430 discount to soybean oil.
Malaysia’s palm oil consumption surges. Malaysia’s local consumption surged to 256k tonnes in November from October’s already strong 211k. We believe this may be been evidence that the Government is indeed rolling out the B5 biodiesel nationwide in January 2013, a move which is anticipated to consume at least 0.5m tonnes of palm oil per annum.
Demand holds up for edible oil. China’s edible oil imports jumped 27.1% YTD while India’s imports climbed 21.6% for the first 10 months of the year. This indicated that edible oil consumption was stable despite lingering demand concerns due to the weak global economy. However, there appeared to have been a shift in demand to soybean oil, perhaps due to anticipation of a soybean oil shortage. This led to palm oil trading at a more than USD430 discount to soybean oil.
Malaysia’s palm oil consumption surges. Malaysia’s local consumption surged to 256k tonnes in November from October’s already strong 211k. We believe this may be been evidence that the Government is indeed rolling out the B5 biodiesel nationwide in January 2013, a move which is anticipated to consume at least 0.5m tonnes of palm oil per annum.
Inventory downcycle. Palm oil inventory should decline from here on as it historically trails production by a one to two months’ lag. We are of the view that inventory would fall by some 0.4m–0.9m tonnes through May or June next year.
Maintain OVERWEIGHT. We are in the midst of reviewing our profit forecasts and target prices for individual stocks, with our CPO price assumptions trimmed to RM2,750 next year. This implies that prices should still recover from now on. We expect to lower CY13 profit forecast by between 7 – 15%. The lower CPO price will be partly mitigated by stronger production and lower windfall tax for Malaysia and lower export duty for Indonesian players.
Production in seasonal downcycle. Malaysia’s palm oil production contracted to 1.888m tonnes in November, down 2.6% - or a 50.1k-tonne decline - from October as fresh fruit bunches (FFB) production entered a seasonal downcycle. Production from Peninsular Malaysia and Sarawak dipped 6.5% and 5.3% m-o-m respectively, while Sabah production bucked the trend with a 6.2% gain. On a y-o-y basis, production grew by double-digits for the first time since January 2012. November output climbed 16.0% y-o-y, bolstered by production from Sabah (+21.5% y-o-y) and Sarawak (+20.5% y-o-y). Nonetheless, YTD production slipped 2.4% over the same period in 2011 despite November’s y-o-y rise following a lacklustre 1H2012.
Exports weaken. Malaysia exported 1.659m tonnes of palm oil in November, down 5.7%, or 99.7k tonnes m-o-m. China’s monthlypurchases rose by nearly 500k tonnes (+234.9k tonnes to 499.9k tonnes), but the rise was more than offset by lower purchases from India (-127.9k tonnes), the European Union (-79.1k tonnes) and Bangladesh (-42.7k tonnes). Meanwhile, exports ticked down by 0.3% y-o-y in November, making it the sixth consecutive month of y-o-y decline, with the stronger purchases from China offset by weaker buying from Pakistan and the United States. YTD exports totalled 15.894m tonnes, 3.1% softer compared to that from the Jan-Nov 2011 period. Shipment to India was up 52.8% while shipment to Europe was up by 15.9%. On the other hand, export to China was down by 14.0% and Pakistan bought 28.3% less palm oil from Malaysia.
Inventory continues to climb. Malaysia’s palm oil inventory grew by 2.3% m-o-m to 2.563m tonnes as production declined less than exports. Refined palm oil inventory eased 4.6% m-o-m to 0.898m tonnes, but CPO stockpiles rose 6.5% m-o-m to 1.665m tonnes. Total inventory was 23.8% higher y-o-y. This is the fourth consecutive month and the 11th time over the past 18 months that inventory had stayed above the 2m-tonne mark. Note that the increase in inventory this year has been in the form of CPO. From the start of the year, processed palm oil inventory was down by 92.8k tonnes while CPO inventory was up by 598.4k tonnes hence Malaysia’s lower export duty for CPO starting Jan 2013 is crucial in halting the CPO inventory build-up.
Exports weaken. Malaysia exported 1.659m tonnes of palm oil in November, down 5.7%, or 99.7k tonnes m-o-m. China’s monthlypurchases rose by nearly 500k tonnes (+234.9k tonnes to 499.9k tonnes), but the rise was more than offset by lower purchases from India (-127.9k tonnes), the European Union (-79.1k tonnes) and Bangladesh (-42.7k tonnes). Meanwhile, exports ticked down by 0.3% y-o-y in November, making it the sixth consecutive month of y-o-y decline, with the stronger purchases from China offset by weaker buying from Pakistan and the United States. YTD exports totalled 15.894m tonnes, 3.1% softer compared to that from the Jan-Nov 2011 period. Shipment to India was up 52.8% while shipment to Europe was up by 15.9%. On the other hand, export to China was down by 14.0% and Pakistan bought 28.3% less palm oil from Malaysia.
Inventory continues to climb. Malaysia’s palm oil inventory grew by 2.3% m-o-m to 2.563m tonnes as production declined less than exports. Refined palm oil inventory eased 4.6% m-o-m to 0.898m tonnes, but CPO stockpiles rose 6.5% m-o-m to 1.665m tonnes. Total inventory was 23.8% higher y-o-y. This is the fourth consecutive month and the 11th time over the past 18 months that inventory had stayed above the 2m-tonne mark. Note that the increase in inventory this year has been in the form of CPO. From the start of the year, processed palm oil inventory was down by 92.8k tonnes while CPO inventory was up by 598.4k tonnes hence Malaysia’s lower export duty for CPO starting Jan 2013 is crucial in halting the CPO inventory build-up.
Source: OSK
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