Malaysia’s  stockpile  surged  to  2.05m  tonnes  in  August  as  production increased  by 22% on spillover  production and flattish export. Palm oil prices  were,  nevertheless,  little  changed.  This  suggests  that  current prices may have factored in worse scenarios. Maintain NEUTRAL  with selective  buys,  with  a  seasonal  upturn  in  palm  oil  prices  as  an immediate catalyst. 

Production surged on spillover.  August’s  production surged by 22%,which was much stronger than the usual August increases. This was due to spillover of July’s  crops,  as there was little harvesting done towards the last week of  the month due to the Hari Raya/Lebaran holiday. Due to the high base effect, we suspect  that  September’s  peak production may be up just a single-digit. 

Flattish  exports.  August’s  exports  were  flattish.  This  was  because  an increase  in  exports  to  India,  Pakistan  and  Bangladesh  were  offset  by lower  exports  to  China  and  Europe.  Should  export s  remain  flattish, inventory  level  will  increase  further.  However,  shipment  for  the  first  10 days in September was up an encouraging 40% from the same period in August.  We  note  that  imports  were  up  marginally  by  4,000  tonnes, suggesting that Indonesia does not have excessive stockpile. 

Steady local consumption. Local usage amounted to 242,600  tonnes, slightly higher than past seven months’ average of 234,000 tonnes. Note that local usage is up by 460,000  tonnes,  or 32.4% this year,  to 1.88m tonnes. This was partly due to the conversion to biodiesel. 

Seasonal low is near.  We believe the seasonal low in palm oil pricescould take shape in September as production starts to soften in October. The  excessive  dryness  in  1Q  this  year  could  affect  4Q’s  production, exacerbating the seasonal production downturn.

Source: RHB