12/01/2013 (The Star) - Local palm oil stocks hit a new record at 2.63 million tonnes at end-December 2012, contrary to market expectation that stocks would be reduced following Malaysia's decision to lower its crude palm oil (CPO) export duty regime to between 4.5% and 8.5% from 23% previously.

Stocks which have been above the two million-tonne mark for the past four months, went up by 2.4% or 61,785 tonnes in December versus 2.56 million tonnes in November.

Export fell to 1.65 million tonnes in December from 1.66 million tonnes a month earlier, said the Malaysian Palm Oil Board (MPOB) in its latest palm oil statistics report yesterday.

CPO production for the month under review also dropped to 1.78 million tonnes from 1.89 million tonnes previously.

’Chandran: ‘Weather or diseases can
lead to production shortfalls.’

A trader said the bearish MPOB December stocks and export figures undermined the CPO price movement yesterday. As at 5pm, the third-month benchmark CPO futures contract for March fell RM24 to RM2,388 per tonne from RM2,412 per tonne on Wednesday.

Bloomberg reported that independent cargo surveyor Intertek said palm oil shipments had dropped 25% to 373,462 tonnes in the first 10 days of this month from 499,732 tonnes in the same period last month.

Meanwhile, industry expert MR Chandran, who expects the average CPO price to drop to RM2,750 per tonne this year compared with last year's RM2,764 per tonne, is still bullish on the palm oil outlook.

He sees potential for CPO price to strengthen towards the later part of 2013 and pointed that it is economically viable to produce biodiesel at the current price.

In his presentation to 100 fund managers and analysts at CIMB Fifth Malaysia Corporate Day early this week, Chandran described the world as approaching capacity limitations for major agriculture resources.

“Any stresses on the global system in the form of weather or diseases can lead to production shortfalls, triggering price explosions in agriculture products.

“The good news is the increased demand has led prices for some agriculture products to trade at a new or higher price band and this will help to encourage investment in new technologies in the agriculture sector to improve production,” he added.

Chandran is also bullish on the long-term global demand for palm oil and predicted that demand to rise from 45 million tonnes in 2010 to 60 million tonnes in 2015 driven mainly by population and income growth.

Meanwhile, CIMB Research which has a “neutral” call on the plantation sector, expects the average CPO price for 2013 to be around RM2,840 per tonne given the demand prospects of potential government actions to raise biodiesel blend in Malaysia.

In view of the lower CPO selling price, CIMB also believes that industry players would be looking more intensely into ways to enhance labour productivity to reduce costs this year.

One of the areas was the plantation companies' efforts to mechanise some parts of their processes in the estates, said the research unit.

“We view this as the key challenges facing the industry today as they will need to raise their estates' productivity to offset the lower selling prices for palm products and higher labour costs,” said CIMB.