MARKET DEVELOPMENT
Palm Oil Inventory Set to Rise, Demand Buoyed by Food Sector
Palm Oil Inventory Set to Rise, Demand Buoyed by Food Sector
12/06/2014 (Borneo Post) - Palm oil inventory is expected to increase by five per cent to 1.93 million metric tonnes, while demand has been viewed as sustainable, driven by positive indicators in the food sector.
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) in a report yesterday believed June’s total supply of 1.72 million metric tonnes should outpace total demand of 1.63 million metric tonnes.
“We have assumed one per cent production growth month-on-month in line with the seasonal pattern.
“On the demand side, we expect flat export growth as the completion of restocking activity for Ramadan may cause a temporary slowdown in demand from India and Pakistan.
“However, this is neutralised by better demand seen from the Northern Hemisphere (China and Europe) due to warmer weather there,” the research firm viewed.
In addition, despite the higher inventory expected, the downside in crude palm oil (CPO) prices should be limited to RM2,300 per metric tonne as this level is within the research firm’s expectations of Indonesia’s biodiesel producers profitable level, which will subsequently spur discretionary demand.
On CPO prices, Kenanga Research said the average CPO prices in the second quarter of 2014 (2Q14_ so far is RM2,611 per metric tonne, which is 12 per cent higher year-on-year (y-o-y) against 2Q13’s average of RM2,324 per metric tonne.
As for CPO production, it said that it has been growing significantly y-o-y as Malaysia CPO production grew by 17 per cent y-o-y to 3.21 million metric tonnes in the period of April and May.
“In view of higher CPO prices and higher CPO production, we believe that planters’ 2Q14 earnings are likely to be robust y-o-y with earnings growth of at least 20 per cent seen for planters,” it projected.
Overall, Kenanga Research maintained its positive view on CPO prices in the mid-to-long-term horizon due to sustainable demand seen from the food sector.
Additionally, it said El Nino could start as soon as two months from now, which should be supportive to CPO prices.
The research firm explained, that CPO prices could surge above RM3,000 per metric tonnes in 2015, potentially due to the possible five per cent drop in Malaysia’s CPO production.
“While El Nino could happen as early as the second half of 2014 (2H14), the impact on prices may not happen immediately as the lower production impact usually will take at least four months,” it commented.
All in, it expected the better CPO prices (at RM2,611 per metric tonne) and better CPO production in 2Q14 to translate into earnings growth of 20 per cent y-o-y for planters.
“We reiterate ‘overweight’ on the sector with our current 2014 average CPO price forecasts of RM2,800 per metric tonne unchanged,” it said.
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) in a report yesterday believed June’s total supply of 1.72 million metric tonnes should outpace total demand of 1.63 million metric tonnes.
“We have assumed one per cent production growth month-on-month in line with the seasonal pattern.
“On the demand side, we expect flat export growth as the completion of restocking activity for Ramadan may cause a temporary slowdown in demand from India and Pakistan.
“However, this is neutralised by better demand seen from the Northern Hemisphere (China and Europe) due to warmer weather there,” the research firm viewed.
In addition, despite the higher inventory expected, the downside in crude palm oil (CPO) prices should be limited to RM2,300 per metric tonne as this level is within the research firm’s expectations of Indonesia’s biodiesel producers profitable level, which will subsequently spur discretionary demand.
On CPO prices, Kenanga Research said the average CPO prices in the second quarter of 2014 (2Q14_ so far is RM2,611 per metric tonne, which is 12 per cent higher year-on-year (y-o-y) against 2Q13’s average of RM2,324 per metric tonne.
As for CPO production, it said that it has been growing significantly y-o-y as Malaysia CPO production grew by 17 per cent y-o-y to 3.21 million metric tonnes in the period of April and May.
“In view of higher CPO prices and higher CPO production, we believe that planters’ 2Q14 earnings are likely to be robust y-o-y with earnings growth of at least 20 per cent seen for planters,” it projected.
Overall, Kenanga Research maintained its positive view on CPO prices in the mid-to-long-term horizon due to sustainable demand seen from the food sector.
Additionally, it said El Nino could start as soon as two months from now, which should be supportive to CPO prices.
The research firm explained, that CPO prices could surge above RM3,000 per metric tonnes in 2015, potentially due to the possible five per cent drop in Malaysia’s CPO production.
“While El Nino could happen as early as the second half of 2014 (2H14), the impact on prices may not happen immediately as the lower production impact usually will take at least four months,” it commented.
All in, it expected the better CPO prices (at RM2,611 per metric tonne) and better CPO production in 2Q14 to translate into earnings growth of 20 per cent y-o-y for planters.
“We reiterate ‘overweight’ on the sector with our current 2014 average CPO price forecasts of RM2,800 per metric tonne unchanged,” it said.