- Newsflow in the plantation sector last week were in respect of updates on the fires in Sumatra and potentially lower palm oil inventory in Malaysia in June. Independent cargo surveyors reported that Malaysian palm oil exports rose 5.4% to 7.0% in June compared with May. IJM Plantations reported a 10.5% MoM fall in its FFB ouput in June.

- According to news reports, Sime Darby Bhd is expected to be exonerated from the forest fires in Sumatra. Industry sources said that Sime Darby had submitted digital maps to RSPO (Roundtable for Sustainable Palm Oil) and the latter is satisfied that the group is not involved. Wilmar also said that it plans to cut off Indonesian palm oil suppliers that clear land with illegal fires.

- In a related development, Jakarta Globe reported that Indonesian police have named 24 small farmers suspected of starting the fires. Authorities have not said whether any of them are from the major plantation companies but they are investigating possible links.

- According to Jakarta Globe, investigation into who had set the fires is proving to be a daunting task for the police. This is because many plantation workers and residents in the province appear to have cigarettes permanently dangling from their lips. Some also argue that the law banning land clearance by fire is unrealistic and should be replaced with government-regulated controlled burning.

- According to Bloomberg, consensus is looking at a palm oil inventory of 1.75mil tonnes in Malaysia for the month of June 2013. MPOB (Malaysian Palm Oil Board) palm oil statistics are scheduled to be released on 10 July, Wednesday.

- We think that Malaysian palm oil inventory could range between 1.65mil and 1.72mil tonnes in June. This is assuming 0% to 5% palm oil production growth and a 5% MoM increase in exports in June.

- IJM Plantations reported that its internal FFB production fell 10.5% MoM in June. Hence, it appears that oil palm trees in the country are going through a soft period after a bumper harvest in 1Q2013. We reckon that palm oil output would start recovering from August or September onwards.

- The MoM climb in palm oil exports from Malaysia in June was driven by China and Pakistan. China increased its buying of palm oil in the last couple of days in June. According to SGS, China bought 22.3% more palm oil in June compared with May while palm oil exports to Pakistan rose 42.9% MoM in June. We are still positive on the plantation sector as slowing production and improved demand are expected to support CPO prices. Presently, we have BUYs on Genting Plantations, IJM Plantations, TSH Resources and KL Kepong.

Source: AmeSecurities