Malaysia. Palm oil stocks rose 9.6 per cent m-o-m in October

02.11.2016

Palm oil stocks have risen by 9.6 per cent month on month (m-o-m) in October, says the research arm of CIMB Investment Bank Bhd (CIMB Research), but production last month is still trailing behind last year’s level.

According to CIMB Research, findings from a survey of 21 planters by the CIMB Futures team revealed that Malaysian CPO output was unchanged at 1.72 milion tonnes in October 2016.

“Palm oil exports fell by approximately 5.8 per cent m-o-m, based on export statistics released by SGS and ITS,” the research arm said in a note yesterday,.

“Overall, we estimate that Malaysian palm oil inventories may have grown by 9.6 per cent m-o-m to 1.7 million tonnes at end-October.”

It added that the official figures will be released on November 10.

CIMB Research noted that the flattish fresh fruit bunch (FFB) output is below the historical October m-o-m average growth of two per cent over the past five years, due partly to the lingering impact of the El Nino.

This was lower than the research arm’s earlier projection of a five per cent m-o-m output increase.

It further noted that year on year (y-o-y), crude palm oil (CPO) output fell 16 per cent in October as the El Nino continued to affect FFB yields.

The research arm’s survey revealed that output from Peninsular Malaysia and Sabah estates rose approximately 4.1 per cent and 0.1 per cent m-o-m, respectively, while the Sarawak estates posted a four per cent m-o-m decline in output.

CIMB Research estimated that Malaysian palm oil exports fell circa 5.8 per cent m-o-m in October 2016, based on estimates from cargo surveyor SGS (-5.1 per cent m-o-m) and ITS (-6.5 per cent m-o-m).

This was below the research arm’s projection for exports to improve five per cent m-o-m, due mainly to weaker demand from India (down 29 per cent m-o-m) and China (down 18 per cent m-o-m).

“The weak exports to China could be partly due to the release of rapeseed oil stocks from state reserves,” it said.

Meanwhile, CIMB Research highlighted that the expectation of higher stocks in October could cap the rise in CPO prices.

The research arm’s survey of eight Indonesian planters revealed a 2.3 per cent m-o-m improvement in output from estates located in Sumatra and Kalimantan, Indonesia in October 2016.

The research arm projected end-October stock level of 1.7 million tonnes remain low as it represents around 1.27 months coverage of average monthly palm oil exports from Malaysia.

In a sneak preview of results, CIMB Research expected plantation companies in Malaysia to deliver stronger quarter on quarter (q-o-q) earnings in the third quarter of 2016 forecast (3Q16F) due to higher output (19 per cent q-o-q) and palm kernel (PK) prices (up 11 per cent q-o-q).

As for y-o-y, the research arm projected that planters will book higher earnings as the 26 per cent rise in CPO and 94 per cent rise in PK prices should more than trump the 14 per cent y-o-y drop in output.

On a side note, CIMB Research observed that five speakers at the recent Palm Oil Trade Fair and Seminar (POTS) 2016 predicted the CPO price to trade in the RM2,200 to RM3,000 per tonne range in 4Q16-2017.

“Among the three most widely-followed speakers for price outlook at the event, Thomas Mielke had the most bullish price forecasts — he projected BMD CPO futures will rise to RM2,900 to RM3,000 per tonne, either in 4Q16 or early-2017. Dorab Mistry had the lowest CPO price forecast of RM2,200 per tonne by December 2016,” it said.

All in, CIMB Research expected CPO prices to trade in the range of RM2,400 to RM2,800 per tonne for the rest of the year.

CIMB Research maintained its ‘neutral’ stance, average CPO price forecasts of RM2,450 per tonne for 2016 and RM2,600 per tonne for 2017, and palm oil supply estimates of 17.9 million tonnes for Malaysia for 2016.


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