- Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for May 2013. Palm oil inventory stood at 1.82mil tonnes as at end-May 2013, about 5.1% lower than the 1.91mil tonnes recorded as at end-April 2013.

- May’s inventory level of 1.82mil tonnes was roughly 2.2% below consensus estimates of 1.86mil tonnes. Average monthly palm oil inventory in Malaysia was 1.85mil tonnes from 2008 to 2012.

- Palm oil inventory in Malaysia continued to decline for the fifth consecutive month after hitting a high of 2.63mil tonnes in December 2012. The fall in the inventory levels in May was due to the flattish palm oil production and low carryover stocks from the previous month.

- The slide in inventory was mainly in respect of palm oil in crude form. Inventory of crude palm oil shrank 13.5% from 1.1mil tonnes in April to 964,644 tonnes in May. CPO inventory fell by 20% in Sabah and 11.9% in Peninsular Malaysia. However in Sarawak, CPO inventory rose by 8% MoM in May. We attribute this to the lack of refining capacity in Sarawak, which resulted in refineries being unable to absorb any surge in CPO production.

- Average CPO price was RM2,270/tonne in May 2013, which was 4.8% lower than the average price of RM2,295/tonne achieved in April. Average CPO price was RM2,302/tonne in the first five months of the year. Our CPO price assumption for the full year is RM2,400/tonne.

- Average price discount between soybean oil and CPO shrank from 23.1% in April to 20.9% in May. In the past five years, the average price discount between the two commodities was 18.1%.

- CPO production inched up 1.3% MoM to 1.38mil tonnes in May. On a YoY basis, CPO output was unchanged in May. In line with what an industry player has been saying, it appears that CPO production in Malaysia in 2H2013 may not be as robust as 2H2012 due to the high-base effect last year.

- Production of CPO in Sarawak expanded by 11.7% MoM in May while CPO output in Peninsular Malaysia edged up by 2.4%. However, these were offset by a 5.1% MoM fall in CPO production in Sabah, which resulted in the country’s palm oil production being flattish in May. Sabah accounted for 30% of Malaysia’s CPO output in May.

- Exports of palm oil from Malaysia slid 3.0% MoM to 1.41mil tonnes in May. From January to May 2013, palm oil exports climbed 11.4% YoY to 7.4mil tonnes.

- Although China bought 31.1% less palm oil in May compared with April, the country’s demand for Malaysian palm oil expanded by 16.5% YoY in the first five months of the year.

- Besides China, Netherlands also bought less palm oil from Malaysia in May. Exports of palm oil to Netherlands eased by 17.2% from 115,316 tonnes in April to 95,525 tonnes in May.

- We remain positive on the plantation sector. CPO prices are expected to recover further underpinned by slowing palm oil production and rising soybean prices. We have BUYs on Genting Plantations, IJM Plantations, TSH Resources and KL Kepong.

Source: AmeSecurities