PublicInvest Research

Author: PublicInvest   |   Latest post: Wed, 5 Aug 2020, 11:25 AM


Plantations- Palm Oil Inventories Drop to 3-Month Low

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The June palm oil data was positive for the palm oil prices given the encouraging exports growth amid a pick-up in production. CPO futures had made a strong comeback after hitting low of RM1,946/mt in Mid-May. YTD, it averaged at RM2,477/mt with a prevailing price of RM2,412/m. Production is expected to see stronger growth in the coming months as oil palm trees enter high production period. This could potentially result in downward pressure on CPO prices unless we see another strong performance from palm oil exports. Maintain Neutral on plantation sector with a full-year CPO price forecast of RM2,300/mt.

  • A decline in inventory for second straight month. In line with market expectations, Malaysian palm oil inventory was down 6.3% MoM to 3- month low of 1.9m mt. On a YoY basis, the drop was even larger, down 21.1%.The lower inventory level was due to continuous growth in exports amid a pick-up in production. Stock-usage-ratio slipped from 9.9% to 7.7%.
  • Bolstered by strong exports to India. Palm oil exports saw a fourth straight monthly gain, up 24.9% to 1.7m mt. The strong exports growth was mainly led by India (+348%), China (+56%), Pakistan (+35%) and US (+6%). Meanwhile, EU registered a decline of 16.2% drop to 127,000 mt. We think the strong demand from China and India was mainly due to re stocking as inventory levels remained low in both countries.
  • A strong pick-up in production. Malaysian monthly palm oil production grew 14.2% MoM and 24.2% YoY to 1.8m mt. The stronger-than expected production was mainly due to a strong recovery in production from Peninsular Malaysia and East Malaysia, up 28% and 19%, respectively.
  • A slow start for July exports. July palm oil exports fell 17% MoM to 448,516mt for the first 10 days of July.
  • Indonesian palm oil inventories rose to 3-month high. Indonesian palm oil inventories rose from 3.37m mt to 3.53m mt in May as exports fell from 2.65m mt to 2.43m mt due to stiffer competition from Malaysia and narrower spread between palm oil and soybean oil prices. Palm oil output saw a slight decline to 3.97m mt and domestic consumption fell from 1.4m mt to 1.38m mt.

Source: PublicInvest Research - 13 Jul 2020

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