-  Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for June 2013. Palm oil inventory in Malaysia declined 9.3% from 1.82mil tonnes as at end-May 2013 to 1.65mil tonnes as at end-June 2013.

-  Palm inventory of 1.65mil tonnes was 5.7% below consensus estimates of 1.75mil tonnes. Average monthly palm oil inventory in Malaysia was 1.85mil tonnes from 2008 to 2012.

-  We think that palm oil inventory in Malaysia would continue to soften until the commencement of the peak production period in August or September. The fall in palm oil inventory in June was due to an increase in the domestic usage of palm oil.

-  Domestic disappearance of palm oil climbed from an estimated 70,621 tonnes in May to 173,752 tonnes in June. We reckon that stocking up of palm oil for the implementation of B10 biodiesel policy could have attributed to the increase in the domestic disappearance of palm oil in June.

-  Palm oil inventory fell the most in Sabah. Inventory of palm oil in crude form slid 29.2% MoM in Sabah in June while CPO inventory in Peninsular Malaysia declined 2.7%.

-  Inventory of CPO in Sarawak increased 10.8% MoM in June. We attribute this to insufficient palm oil refining capacity in Sarawak. Sarawak has refining capacity of 2.39mil tonnes annually. In comparison, CPO production in the state was 2.92mil tonnes in 2012.

-  Average CPO price was RM2,387/tonne in June 2013, which was 5.1% higher than the average price of RM2,270/tonne recorded in May. Average CPO price was RM2,316/tonne in 1H2013. Our CPO price assumption is RM2,400/tonne for the full year.

-  After peaking at 33.3% in December 2012, average price discount between soybean oil and CPO continued to decline in June 2013. Price disparity between the two commodities narrowed from 20.9% in May to 17.4% in June. In the past five years, the average price discount was 18%.

-  CPO production inched up by 2.3% MoM to 1.42mil tonnes in June. This was driven mainly by Peninsular Malaysia, which recorded a 6.8% MoM increase in CPO output. CPO production in Sabah eased by 8.2% from 420,917 tonnes in May to 386,525 tonnes in June.

-  MPOB reported that exports of palm oil from Malaysia was unchanged MoM at 1.41mil tonnes in June. In contrast, independent cargo surveyors said that palm oil shipments range between 5.4% to 7% MoM in June. We believe that the discrepancy between the two reports is due to timing differences.

-  Interestingly, Malaysia has been recording positive growth in exports of biodiesel this year. Biodiesel exports expanded 299.2% from 18,186 tonnes in 1H2012 to 72,591 tonnes in 1H2013.

-  We remain positive on the plantation sector. CPO prices are expected to rise on the back of low palm oil inventory. We have BUYs on Genting Plantations, IJM Plantations, TSH Resources and KL Kepong.

Source: AmeSecurities