05/01/2013 (Borneo Post) - Global production of crude palm oil (CPO) is expected to grow by 8.3 per cent year-on-year (y-o-y) to 56.5 million tonnes this year, mainly from Malaysia and Indonesia.

UOB Kay Hian (Malaysia) Holdings Sdn Bhd (UOBKayHian) in its report stated that the stronger CPO production in 2013 would come from a yield recovery in Malaysia, the absence of weather disruption as expected earlier and better production in Indonesia.

Malaysia’s CPO production was likely to grow between three per cent and five per cent y-o-y to between 19 million tonnes and 19.3 million tonnes as yield recovery from the lagged impact from 2009/2010’s El Nino in the first half of 2012 continued.

Indonesia, on the other hand, was forecasted to produce betwen 28.6 million tonnes and 29 million tonnes in CPO, supported by large new mature areas and improving age profile.

The large-scale oil palm new planting activities in Indonesia took place back in 2006-2010, and these areas were now entering the young mature age and high growth stage.

As supply increases, demand was also expected to pick up after the winter season, the research firm pointed out.

The net increase in global palm oil demand for 2013 and 2014 were projected to come in at 3.5 million tonnes and four million tonnes respectively, driven by low CPO prices and demand from the energy sector.

Due to the high volume of inventory carried forward from 2012 as well as better supply growth, prices were unlikely to reach to the demand recovery and inventory levels were likely to stay high for 2013, UOBKayHian ellaborated.

The unusually low demand in 2012 had resulted in Malaysia and Indonesia recording high inventory levels, it added. Malaysia reported a record-high inventory level of 2.56 million tonnes in November 2012 while Indonesia’s October 2012 stock stood at three million tonnes.

“Although we are expecting better demand mainly from India, Pakistan, Africa as well as Europe, CPO prices are unlikely to react to the demand recovery on high inventory carried forward from 2012 and stronger supply growth in 2013,” it stated.

UOBKayHian pointed out that plantation stocks were expected to underperform the market if CPO price traded sideways.

Taking into consideration all the risks factor going forward, the research firm cut its CPO price assumption to RM2,900 per tonne for both 2012 and 2013 from RM3,150 per tonne and RM3,400 per tonne respectively, and maintained its 2014 forecast at RM2,950 per tonne.