- Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for March 2014. Malaysia’s palm oil inventory rose by 1.9% from 1.66mil tonnes in February to 1.69mil tonnes in March 2014. The increase in palm oil inventory was due to a recovery in production, which was not met by demand.

- Palm oil inventory of 1.69mil tonnes was slightly above consensus estimates of 1.6mil tonnes but still lower than the six-year average palm oil inventory level of 1.87mil tonnes. Average palm oil inventory was 1.96mil tonnes last year.

- Domestic disappearance of palm oil continued to climb from 204,000 tonnes in February to 225,000 tonnes in March 2014. If domestic disappearance had stayed at February’s level of 204,000 tonnes, palm oil inventory would have been 1.71mil tonnes in March.

- There is a possibility that domestic disappearance would start easing as the roll-out of the B5 biodiesel policy is expected to be completed by July 2014. Although an MPOB official has said that B7 would be implemented by January 2015, there is no response from the automobile industry yet.

- CPO production expanded by a strong 17.3% MoM to 1.5mil tonnes in March 2014 after falling every month since November 2013. The recovery in CPO output was in line with the improved rainfall in March. The rise in palm oil production is expected to continue, heading towards the peak season in 3Q2014.

- The lagged impact of the dry weather early this year is expected to take place 12 and 24 months later. Peninsular Malaysia and Sumatra are envisaged to be more affected than Sabah and Kalimantan.

- CPO production surged by 18.8% MoM to 769,518 tonnes in Peninsular Malaysia in March. In Sabah, CPO output rebounded by 14.5% MoM while in Sarawak, CPO production climbed by 18.5%. CPO production in Malaysia amounted to 4.28mil tonnes in 1Q2014. For the full year, MPOB has forecasted Malaysia’s CPO output at 19.5mil tonnes.

- The rise in inventory was mainly in respect of palm oil in processed form. Inventory of processed palm oil jumped by 29.4% MoM to 287,166 tonnes in Sabah in March 2014 while Sarawak recorded a 14.0% increase. Inventory of procesed palm oil in Peninsular Malaysia rose by 2.3% from 418,548 tonnes in February to 428,026 tonnes in March.

- In line with the shipment trends reported by the independent cargo surveyors, MPOB said that palm oil exports from Malaysia slid by 8.0% MoM to 1.24mil tonnes in March 2014. Palm oil exports shrank by 13.2% YoY to 3.96mil tonnes in 1Q2014 even as palm oil production increased by 1.4%. China’s imports fell by 28% MoM in March while India bought 30.2% fewer palm oil.

- Biodiesel exports improved from 2,860 tonnes in February to 8,752 tonnes in March. On a YoY basis, biodiesel exports from Malaysia declined by 48.8% to 15,969 tonnes in 1Q2014. We believe that this could be due to fossil fuel or biodiesel from other vegetable oils being cheaper than palm oil.

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

Source: AmeSecurities