11/05/2012 (The Star) - Local palm oil inventory fell to the lowest in a year to 1.85 million tonnes in April, compared with 1.95 million tonnes recorded a month earlier, according to the Malaysian Palm Oil Board (MPOB).

Stocks previously stayed above the two million-tonne mark from September last year to February this year, triggering much concern among the industry players.

Production, however, increased 5.07% to 1.27 million tonnes from 1.21 million tonnes in the previous month, MPOB said in its latest palm oil statistics released yesterday.

Palm oil exports were marginally higher by 0.14% to 1.33 million tonnes in April against 1.32 million tonnes in March.

Interestingly, crude palm oil (CPO) imports had also increased by 46% to 40,616 tonnes in April from March's 27,908 tonnes despite recent uproar by local independent refiners on the difficulties of obtaining CPO especially with Indonesia's move to lower its CPO export duty in efforts to encourage the development of its own palm oil refining operations.

MPOB said the fresh fruit bunches (FFB) price for the month under review rose to RM37.83 per tonne from RM35.75 a month ago.

Meanwhile, CPO futures on Bursa Derivatives Exchange ended on a higher note as the market reacted positively to MPOB's lower palm oil inventory and better export outlook, dealers said.

As at 5pm yesterday, the three-month benchmark CPO futures contract for July rose RM30 to RM3,365 per tonne from RM3,335 on Wednesday.

ECM Libra Investment Research in its latest report said potential palm oil tree stress could be on the horizon.

(CPO production will turn flat or decline during tree-stress period, which normally lasts for about two years.)

In fact, the average monthly FFB yields in the first quarter this year declined 22% compared with the average drop of 12%.

The first-quarter monthly average FFB yields at 1.28 tonnes per ha was also the lowest among the previous five years which averaged at 1.33 tonnes per ha.

“This suggests the production this year may be weaker than expected due to tree stress,” it said, adding that the La Nina event that happened during the tail end of 2011 might also be unable to boost yields sufficiently.

ECM Libra also said strong soybean prices could support CPO prices.

“South American soybean supply estimates saw further cuts by Oil World due to more crop losses. Estimates have now been cut continuously for five months and current estimates stand 15% below original estimates in November last year,” it added.