Higher import and production mom compounded by lower export volume resulted in inventory climbing to ten-month high of 2.72m tonnes in October (+7.6% mom). YTD October period, the inventory number increased 26.1% yoy to 2.72m tonnes vs. 2.20m tonnes recorded for the same period last year. Off note, palm oil import was 90.4% higher mom to 117.3k tonnes compared to 61.6k tonnes in September 2018. Notably, stocks of CPO increased by 13.9% mom to 1.61m tonnes during the period – however, PPO stocks dropped slightly by 0.4% mom to 1.11m tonnes as at end October 2018. We expect stock level to continue to rise in November as production is expected to increase before it starts to moderate in December. Given the scenario, we have revised our year-end closing stock to 2.65m tonnes from 2.58m tonnes previously given a higher opening stocks and lacklustre demand outlook.
Palm oil export volume fell 2.97% mom to 1.571m tonnes vs 1.619m tonnes recorded in September 2018 (+2.15% yoy) as India, EU and USA registered lower demand.India registered the biggest drop of 56.5% followed by EU (-27.2%), the Netherland (-12.1%) and USA by -5%. PO export value fell 4% mom (-17% yoy) to RM3.715bn. We are of the view that PO demand will continue to be muted in the next couple of month given ample supply and high stocks of PO from both Indonesia and Malaysia, as well as higher supply of Soybean from US, Brazil and Argentina. Hence, we reduced our export number to 16.45m tonnes for 2018 (16.88m tonnes forecast earlier).
Malaysia’s CPO production increased 6.0% mom to 1.965m tonnes in October 2018 as all states in Malaysia recorded higher mom production, except for Sarawak that registered negative growth of 2% to 445.6k tonnes vs. 455.2k tonnes recorded in September 2018. Notably, on yoy basis, almost all states in Malaysia registered negative production, lagging behind last year’s production number except for Perak, Selangor, Sarawak and Sabah. Although CPO production for the period Jan-Oct 2018 fell 1.74% yoy to 15.862m tonnes, we expect production would catch-up in November. Nonetheless, we changed our CPO production forecast to 19.98m tonnes for this year (+0.3%) from 20.08m tonnes predicted earlier.
We are revising our prediction that average CPO price for the remaining months to trade within the range of RM2,000/MT to RM2,200/MT from RM2,200/MT to RM2,300/MT previously as market sentiment was affected by a build-up in PO stocks with production growth seen to remain in uptrend for both Indonesia and Malaysia. As there is no strong catalyst expected to boost CPO price, we revised our average CPO price forecast for 2018 to RM2,300/MT from RM2,380/MT previously whilst maintaining the 2019 target average CPO price of RM2,450/MT.
The 3-month CPO futures price in the month of October has been range-bound to close the month at RM2,150/MT (lowest was on 26 Oct: RM2,148/MT). On the other hand, CPO price for local delivery, i.e. MPOB’s CPO price for Sept 2018, fell by 4.4% mom (yoy: -23.9%) to an average of RM2,082/MT against RM2,178/MT recorded in the previous month.
For Jan-Oct 2018 period, the MPOB average CPO price stands at RM2,320/MT, down by RM528/MT or -18.5% against RM2,848/MT recorded in the same period last year – and 0.87% above our 2018 average CPO price forecast of RM2,300/MT.
We reiterate our Neutral recommendation on the plantation sector. Maintain Buy calls on SOP (TP: RM3.23) and GENP (TP: RM10.50) while Hold on HAPL (TP: RM2.25), KLK (TP: RM25.50), Batu Kawan (TP: RM19.05), IOIC (TP: RM4.55), TSH (TP: RM1.20), and FGV (TP: RM1.60). We have Sell on IJMP (TP: RM1.70) and Sarawak Plantation (TP: RM1.41) whilst Non-Rated for THP.
Source: BIMB Securities Research - 13 Nov 2018
Created by kltrader | Aug 12, 2024
Created by kltrader | Aug 12, 2024
Created by kltrader | Aug 09, 2024
Created by kltrader | Aug 09, 2024