Shipment down in June. India's edible oil purchase declined by 13% m-o-m in June to 770k tonnes, and could have fallen further in July, based on the 26% drop in Malaysia's palm oil shipment for the first 15 days. There are concerns that the weakness in India's import was due to the rupee's weakness, which has impaired India's purchasing power. However, we believe this slowdown is only temporary.

Currency factor not new. India's rupee has been on a decline in the past 4 to 5 years. The currency has depreciated by 33% against the MYR and 26% against the Indonesian rupiah from the peak in late 2007. YTD, the rupee is down by an average 10% against the RM and 6.4% versus the rupiah compared to the 2011 full-year average.

Weakening currency equals record-high CPO price. Due to the currency's weakness, the palm oil price in rupee terms has been hovering at record levels since early 2011. Average CPO and olein prices in rupee have been climbing for three consecutive years. While one should anticipate some form of demand destruction if prices reach excessively high levels, it is too early to tell if we have reached that point. After all, India's 1H edible oil import is still higher by 34% y-o-y this year, while its palm oil import has risen 23%.

Maintain Overweight. We continue to think palm oil price will scale higher next year on the back of an El Nino-induced drought. Our favourite BUYS are Sarawak Oil Palms, Kulim, BW, and Kencana Agri.