14/03/2012 (Sun Daily): A slump in palm oil exports in February has not dampened sentiment in the market, with prices kept steady by expectation that cargo shipments will recover this month.

A seasonal drop in production means palm oil stockpile will remain tight, but the situation may change in the second half of the year as production recovers.

"Although we believe palm oil price can still scale higher due to potentially disappointing production in the near term, we are concerned about a potential pullback in soybean price,'' OSK Research said yesterday.

The Malaysian Palm Oil Board on Monday said palm oil stockpile in the country rose to 2.06 million tonnes in February from the previous month despite a 8% decline in production from estates, as exports dropped at a sharper 13% rate.

"February demand is seasonally the lowest in the year, but the steep drop (in exports) indicates more intense competition from Indonesia than we initially thought,'' HwangDBS Vickers Research said.

"Malaysian exports should recover this month, now that soybean supplies look tight, while post-winter demand kicks in with some price adjustments,'' it added.

Initial data showed exports had surged 32% during the first 10 days of March and this had buoyed the market.

The benchmark CPO futures contract rebounded yesterday, rising 5% so far this year to above RM3,340 a tonne. Despite a weaker outlook, a growing number of analysts believed that the average price in 2012 will be at least RM3,000 a tonne.

BIMB Securities yesterday joined the bandwagon, raising its average price estimate for 2012 to RM3,000 a tonne.

HwangDBS Vickers also said it was reviewing its current price assumption of RM2,990 this year. That forecast was based on Brent crude trading at US$100 a barrel.

Brent crude is currently trading at above US$120 a barrel.

Palm oil competes with soyoil in the food market and the former can also be blended with fossil oil for use as fuel.

Kenanga Research believed that demand from key buyer China will improve in March, but warned that rising prices may also limit its purchases.

"Overall, weak growth in exports should keep CPO price upside limited in the near term,'' it said.

OSK said a pullback in CPO prices may not happen just yet given the narrow discount of US$80 per tonne of palm oil to soyoil. However, a price correction in the soybean market could spark off a sharper decline in palm oil prices.

"We think it is too early to raise our price assumption of RM3,000 a tonne as some price weakness could be seen in the second and third quarters," it said