MARKET DEVELOPMENT
Palm Oil Stock Lower Than Expected, Trend to Persist
Palm Oil Stock Lower Than Expected, Trend to Persist
12/03/2014 (Borneo Post) - Malaysia’s palm oil stock level registered 1.66 million metric tonnes (mt) in February this year, coming in signifi cantly below market expectations of 1.80 million mt.
Analyst Alan Lim from Kenanga Investment Bank Bhd (Kenanga Research) said they had underestimated the impact of tree stress impact as production surprisingly plunged 15 per cent month on month against its expectation of a six per cent m-om drop.
On the demand side, exports remained strong and declined only one per cent m-o-m to 1.35 million mt despite the shorter February month.
“Overall, we are positive on the news as lower-than-expected inventory is usually taken as bullish sign for crude palm oil (CPO) prices.”
The team at MIDF Amanah Investment Bank Bhd (MIDF Research) observed that CPO production declined for the fourth consecutive month in February, falling 15.3 per cent m-o-m and 1.5 per cent year on year to 1.28 million mt. It said that growing biodiesel demand in Indonesia helped to keep global inventory low.
“In September 2013, the Indonesian government announced to increase the amount of biodiesel blended with fuel to 10 per cent from 7.5 per cent.
“In February, PT Pertamina, an Indonesian state-owned oil and natural gas corporation has already secured 2.4 million kilolitres of biodiesel.
“This is positive to the industry as the increase in biodiesel demand helps to keep palm oil inventory low and consequently support the rise in CPO price,” it added.
Looking ahead, Lim from Kenanga Research expects March’s inventory to decline by eight per cent to 1.52 million mt. “On the supply side, we have assumed 14 per cent increase mo- m to 1.46 million mt in line with seasonal trend.
On the demand side,exports should improve fi ve per cent m-o-m to 1.42 million mt as the weather in the northern hemisphere heats up from March onwards.
Note that palm oil tends to solidify in cold weather and hence is used less during cold temperature.
Local consumption should stay strong at 0.20 million mt and this together with good export increase should cause inventory to decline further in March.
“This should be supportive to CPO prices, and we expect it to stay at the current strong level of around RM2,900.”
Analyst Alan Lim from Kenanga Investment Bank Bhd (Kenanga Research) said they had underestimated the impact of tree stress impact as production surprisingly plunged 15 per cent month on month against its expectation of a six per cent m-om drop.
On the demand side, exports remained strong and declined only one per cent m-o-m to 1.35 million mt despite the shorter February month.
“Overall, we are positive on the news as lower-than-expected inventory is usually taken as bullish sign for crude palm oil (CPO) prices.”
The team at MIDF Amanah Investment Bank Bhd (MIDF Research) observed that CPO production declined for the fourth consecutive month in February, falling 15.3 per cent m-o-m and 1.5 per cent year on year to 1.28 million mt. It said that growing biodiesel demand in Indonesia helped to keep global inventory low.
“In September 2013, the Indonesian government announced to increase the amount of biodiesel blended with fuel to 10 per cent from 7.5 per cent.
“In February, PT Pertamina, an Indonesian state-owned oil and natural gas corporation has already secured 2.4 million kilolitres of biodiesel.
“This is positive to the industry as the increase in biodiesel demand helps to keep palm oil inventory low and consequently support the rise in CPO price,” it added.
Looking ahead, Lim from Kenanga Research expects March’s inventory to decline by eight per cent to 1.52 million mt. “On the supply side, we have assumed 14 per cent increase mo- m to 1.46 million mt in line with seasonal trend.
On the demand side,exports should improve fi ve per cent m-o-m to 1.42 million mt as the weather in the northern hemisphere heats up from March onwards.
Note that palm oil tends to solidify in cold weather and hence is used less during cold temperature.
Local consumption should stay strong at 0.20 million mt and this together with good export increase should cause inventory to decline further in March.
“This should be supportive to CPO prices, and we expect it to stay at the current strong level of around RM2,900.”