- IJM Plantations has released its production number for the month of May 2013. The group’s FFB production inched up 1.2% MoM to 51,345 tonnes in May 2013.

- In its earnings conference call, another industry player indicated that its FFB output in May could be marginally lower than April. The plantation company also said that it expects FFB production to pick up from August onwards.

- If these were to be generalised for the entire plantation industry, then it implies that the country’s palm oil production in May could be relatively flat compared with April.

- These also imply that there is a possibility that palm oil inventory would continue to soften until the peak output season starts at the end of 3Q2013 or start of 4Q2013. MPOB (Malaysian Palm Oil Board) is scheduled to release the monthly statistics on 10 June 2013.

- Based on the relatively stagnant FFB production, a 3% decline in palm oil exports and the same amount of domestic usage, we estimate that Malaysia’s palm oil inventory as at endMay 2013 may fall to 1.73mil tonnes to 1.8mil tonnes. Palm oil inventory as at end-April 2013 stood at 1.93mil tonnes.

- Supporting domestic usage of palm oil is biodiesel. Although the implementation of the B10 policy in Malaysia is likely to slow due to the transition in the cabinet, we reckon that biodiesel companies have a reprieve as they can now export to European Union (EU) more competitively.

- This is due to the import duties imposed on Indonesian biodiesel companies. The duties range from 0% to 9.6%. Wilmar International’s subsidiaries were imposed an import duty of 9.6%.

- The import duty of 9.6% almost erases the lower cost of CPO resulting from Indonesia’s export tax rate structure. The export tax rate for CPO was 9% for the month of May. This means that the cost of CPO for Indonesian downstream players was 9% lower than international CPO prices.

- The import duty imposed by EU on Indonesian biodiesel imports places Malaysia in a more level playing field. This should encourage more biodiesel imports from Malaysia. Biodiesel players in the country include Sime Darby and Felda Global Ventures.

- We remain positive on the plantation sector. CPO prices have been holding up recently due to the rising soybean prices. Soybean prices have been improving due to the wet weather in USA, which could result in the delay of plantings.

Source: AmeSecurities