- Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for February 2014. Malaysia’s palm oil inventory edged down by 14.2% from 1.93mil tonnes in January to 1.66mil tonnes in February 2014. The decline in palm oil inventory was due to a fall in production resulting from the dry weather.

- Palm oil inventory of 1.66mil tonnes was below consensus estimates of 1.8mil tonnes. Average palm oil inventory was 1.87mil tonnes in the past six years and 1.96mil tonnes in 2013.

- Domestic disappearance of palm oil inched up by 5.1% from 190,000 tonnes in January to 204,000 tonnes in February 2014. In spite of the rise in CPO prices, it appears that stockpiling of palm oil is still continuing. We believe that this could be due to the implementation of B5, which is supposed to be fully rolled-out in Malaysia by July 2014.

- CPO production shrank by 15.3% MoM and 1.5% YoY to 1.28mil tonnes in February 2014 due to seasonal factors and the dry weather. Industry experts have forecasted Malaysia’s CPO production at 19.5mil tonnes for this year compared with 19.2mil tonnes last year. CPO output in Indonesia is estimated at 28.5mil-30mil tonnes in 2014F versus 23.8mil-24.5mil tonnes in 2013.

- The fall in CPO production was led by Peninsular Malaysia, which recorded a 16.9% MoM decline in February 2014. CPO production in Sarawak declined by 14.2% while Sabah’s CPO output was 13.3% MoM lower in February.

- Average CPO price rose by 5.3% from RM2,529/tonne in January to RM2,662/tonne in February. Currently, the price discount between CPO and soybean oil is 9.3% or US$89/tonne (RM293/tonne).

- The fall in palm oil inventory was in respect of both processed and crude palm oil. Inventory of processed palm oil in Malaysia shrank by 15% MoM in February while crude palm oil inventory fell 13.6%.

- Inventory of processed palm oil contracted by 28.8% MoM in Sarawak while those in Peninsular Malaysia eased by 15.9%. Inventory of processed palm oil slid 5.6% from 235,082 tonnes in January to 221,956 tonnes in February in Sabah.

- Palm oil exports edged down 1.3% from 1.37mil tonnes in January to 1.35mil tonnes in February. China bought 15.8% fewer palm oil in February compared to January while USA’s imports of palm oil fell by 55.1%. A silver lining is the 2.3% MoM increase in exports to India in February.

- Exports of Malaysian biodiesel slid by 34.3% MoM to 2,860 tonnes in February. In the first two months of the year, biodiesel exports contracted by 56.5% YoY. Going forward, there is a possibility that biodiesel exports to Europe will decline as palm oil becomes more expensive relative to other vegetable oils and mineral oil.

- We have an OVERWEIGHT stance on the plantation sector. Currently, we have BUYs on Sime Darby and IOI Corporation.

Source: AmeSecurities