Plantation Sector - Palm oil inventory down 1.9% MoM in January OVERWEIGHT

- Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for January 2013. Palm oil inventory declined 1.9% from 2.63mil tonnes as at end-December 2012 to 2.58mil tonnes as at end-January 2013. This was in line with market expectations of 2.53mil tonnes for the month of January 2013.

- The MoM decrease in palm oil inventory in January 2013 was due to seasonally lower palm oil production. After a bumper harvest in the last two months of 2012, palm oil production in Malaysia eased in January 2013.

- Due to the same magnitude of declines in palm oil production and exports, stock usage in January 2013 remained flat MoM at 1.59x.

- Inventory of palm oil in crude and processed form slid MoM in January 2013. Inventory of crude palm oil shrank 1.0% in January 2013 compared to December 2012 while that processed palm oil fell 3.3%.

- Average CPO price was RM2,221/tonne in January 2013, roughly 30.2% lower than the average price of RM3,183/tonne recorded in January 2012. Consensus are expecting an average CPO price of RM2,800/tonne for 2013F. Year-to-date, CPO price has averaged RM2,420/tonne.

- After months of widening discount, average price discount between CPO and soybean oil finally narrowed in January 2013. Price discount between the two commodities shrank from an average of 33.3% in December 2012 to 29.3% in January 2013.

- CPO output in Malaysia fell 10.0% MoM but expanded 24.5% YoY to 1.6mil tonnes in January 2013. CPO production in Peninsular Malaysia fell 9.4% MoM in January 2013 while output in East Malaysia slid 10.6%.

- Industry experts are forecasting that palm oil production in Malaysia would inch up from 18.8mil tonnes in 2012 to a range of 18.9mil to 19.0mil tonnes for 2013F.

- Exports of palm oil from Malaysia eased 1.6% MoM in January 2013. However, a heartening note is the YoY expansion in demand. Compared to January 2012, exports of palm oil climbed 17.2% in January 2013.

- Although China implemented stricter import guidelines for palm oil effective 1 January 2013, there was no material impact on demand. Exports of palm oil to China rose 23.3% in January 2013 against January 2012.

-  India and Pakistan also bought 56.2% to 56.9% more palm oil in January 2013 compared to January 2012.

- China accounted for 16.5% of Malaysian palm oil exports in January 2013. This was followed by Pakistan, which accounted for another 11.1% of exports and India, which accounted for an additional 10.6%.

- In conclusion, we maintain a positive stance on the plantation sector. Demand for crude and processed palm oil is recovering on the back of lower prices and increasing competitiveness relative to the Indonesian palm oil refiners. The wide discount between CPO and soybean oil is also expected to support palm oil prices.

Source: AmeSecurities