MARKET DEVELOPMENT
CPO Futures Slump to One-year Low
CPO Futures Slump to One-year Low
13/08/2014 (The Star) - The benchmark crude palm oil (CPO) futures to be delivered in October, slumped 2.5% to a one-year low to close at RM2,177 per tonne yesterday, reflecting the bearish outlook brought about by the rising domestic palm oil inventory and increasing production situation.
This is on the back of palm oil stock for July increasing 1.47% to 1.68 million tonnes from a month earlier, while CPO production rose 6.11% to 1.66 million tonnes.
“The higher palm oil stock was against market expectations of a 3.6% decline in inventory (in July), as CPO production grew higher than expected in July,” said JF Apex Research in its latest plantation sector report.
“While we reckon the current palm oil inventory level will remain low, we expect it to go up in the coming months amid the high production season,” added the research unit.
Furthermore, palm oil exports in July also took a breather mainly due to the receding pre-Ramadan demand.
According to the latest statistics released by the Malaysian Palm Oil Board (MPOB), palm oil exports in July declined 2.32% to 1.45 million tonnes from 1.48 million tonnes in June, mainly dragged down by lower exports to China, Europe and the United States, even though exports to India surged 54% month-on-month in July.
On the flip side, market traders said local palm oil exports to price-sensitive major markets like India and China were expected to pick up within the next two months on renewed stock-piling interest.
Traditionally, major importers India and China would return particularly in September to replenish their palm oil stocks in preparation for the Deepavali, Christmas and New Year holidays.
Meanwhile, the average CPO price in July fell marginally to RM2,400 per tonne from RM2,434 per tonne in June, as the strengthening of the ringgit had resulted in ringgit-denominated palm oil becoming pricier to overseas refiners, thus lowering the demand for palm oil.
Spot CPO prices remain weak by hovering at the RM2,300-per-tonne level tracking the weak rival soybean market, after the United States forecast a record soybean crop.
JF Apex Research is maintaining its overweight rating on the plantation sector currently pending a CPO price review. “We may revise downward our current CPO average price assumption of RM2,750 per tonne, as the CPO prices only achieved an average of RM2,590 per tonne in the first seven months of this year.
JF Apex Research’s top pick for the sector is Genting Plantations Bhd, with a target price of RM12.64, but has a “hold” call on Kuala Lumpur Kepong Bhd, IOI Corp Bhd and IJM Plantations Bhd. as it is convinced that the group’s earnings growth going forward would remain commendable.
This is on the back of palm oil stock for July increasing 1.47% to 1.68 million tonnes from a month earlier, while CPO production rose 6.11% to 1.66 million tonnes.
“The higher palm oil stock was against market expectations of a 3.6% decline in inventory (in July), as CPO production grew higher than expected in July,” said JF Apex Research in its latest plantation sector report.
“While we reckon the current palm oil inventory level will remain low, we expect it to go up in the coming months amid the high production season,” added the research unit.
Furthermore, palm oil exports in July also took a breather mainly due to the receding pre-Ramadan demand.
According to the latest statistics released by the Malaysian Palm Oil Board (MPOB), palm oil exports in July declined 2.32% to 1.45 million tonnes from 1.48 million tonnes in June, mainly dragged down by lower exports to China, Europe and the United States, even though exports to India surged 54% month-on-month in July.
On the flip side, market traders said local palm oil exports to price-sensitive major markets like India and China were expected to pick up within the next two months on renewed stock-piling interest.
Traditionally, major importers India and China would return particularly in September to replenish their palm oil stocks in preparation for the Deepavali, Christmas and New Year holidays.
Meanwhile, the average CPO price in July fell marginally to RM2,400 per tonne from RM2,434 per tonne in June, as the strengthening of the ringgit had resulted in ringgit-denominated palm oil becoming pricier to overseas refiners, thus lowering the demand for palm oil.
Spot CPO prices remain weak by hovering at the RM2,300-per-tonne level tracking the weak rival soybean market, after the United States forecast a record soybean crop.
JF Apex Research is maintaining its overweight rating on the plantation sector currently pending a CPO price review. “We may revise downward our current CPO average price assumption of RM2,750 per tonne, as the CPO prices only achieved an average of RM2,590 per tonne in the first seven months of this year.
JF Apex Research’s top pick for the sector is Genting Plantations Bhd, with a target price of RM12.64, but has a “hold” call on Kuala Lumpur Kepong Bhd, IOI Corp Bhd and IJM Plantations Bhd. as it is convinced that the group’s earnings growth going forward would remain commendable.