MARKET DEVELOPMENT
CPO Price Surges as Inventory Heads to 4-year Low
CPO Price Surges as Inventory Heads to 4-year Low
06/09/2016 (The Star) - Crude palm oil prices (CPO) are closing in on multi-year highs after preliminary findings indicate a supply crunch which could see the lowest monthly palm oil inventory in more than four years.
The accelerating depletion in palm oil stocks was due to rising export demand as well as lingering effects from the El Nino weather phenomenon.
According to CIMB Research, a survey of 24 planters show that Malaysian palm oil inventories may have fallen to 1.45 million tonnes as at end August, or the lowest figure since January 2011, according to Malaysian Palm Oil Board (MPOB) figures.
“This would represent an 18% month-on-month decline. The sudden strong pick-up in demand for palm oil last month exposed the prevailing tight global palm oil supply situation following the sharper-than-expected drop in global palm oil output,” said the research house in a note.
Another positive surprise for the industry is the stronger-than-anticipated demand from key export destinations such as China and India.
CIMB forecasts that Malaysian palm oil exports grew by 27% month-on-month in August based on estimates from cargo surveyors SGS and ITS. This was far more than the projected 5% m-o-m increase that was initially expected by the research house.
India’s demand grew 126% month-on-month due to the upcoming Diwali season while exports to China increased 28% m-o-m after its government stopped releasing its rape oil reserves, it added.
The latest prices from both the spot and futures markets have been supportive of the supply shortage angle.
The third month benchmark CPO futures contract for December delivery peaked at RM2,601 a tonneyesterday, or near a three-year high. It subsequently closed at RM2,592 a tonne.
Production tends to be seasonally weak during the final months of the year due to the monsoon season. On the other hand, the damage arising from of El Nino on palm crops could exacerbate the supply disruption in the coming months.
For the month of December during last year as well as in 2014, actual settlement prices averaged around RM2,150 a tonne.
Production tends to be seasonally weak during the final months of the year due to the monsoon season. On the other hand, the damage arising from of El Nino on palm crops could mean lower production in the coming months.
According to Bloomberg data, CPO prices have averaged RM2,535 a tonne to date, or at the high end of research house estimates.
Among CIMB’s top picks in the plantation sector are Felda Global Ventures Holdings Bhd (FGV) and Genting Plantations Bhd. It has an “add” call on the two firms with target prices of RM2.76 and RM11.40 respectively.
The research house favours FGV for its business turnaround plan and Genting Plantations for its young estates, solid balance sheet and strong management.
The accelerating depletion in palm oil stocks was due to rising export demand as well as lingering effects from the El Nino weather phenomenon.
According to CIMB Research, a survey of 24 planters show that Malaysian palm oil inventories may have fallen to 1.45 million tonnes as at end August, or the lowest figure since January 2011, according to Malaysian Palm Oil Board (MPOB) figures.
“This would represent an 18% month-on-month decline. The sudden strong pick-up in demand for palm oil last month exposed the prevailing tight global palm oil supply situation following the sharper-than-expected drop in global palm oil output,” said the research house in a note.
Another positive surprise for the industry is the stronger-than-anticipated demand from key export destinations such as China and India.
CIMB forecasts that Malaysian palm oil exports grew by 27% month-on-month in August based on estimates from cargo surveyors SGS and ITS. This was far more than the projected 5% m-o-m increase that was initially expected by the research house.
India’s demand grew 126% month-on-month due to the upcoming Diwali season while exports to China increased 28% m-o-m after its government stopped releasing its rape oil reserves, it added.
The latest prices from both the spot and futures markets have been supportive of the supply shortage angle.
The third month benchmark CPO futures contract for December delivery peaked at RM2,601 a tonneyesterday, or near a three-year high. It subsequently closed at RM2,592 a tonne.
Production tends to be seasonally weak during the final months of the year due to the monsoon season. On the other hand, the damage arising from of El Nino on palm crops could exacerbate the supply disruption in the coming months.
For the month of December during last year as well as in 2014, actual settlement prices averaged around RM2,150 a tonne.
Production tends to be seasonally weak during the final months of the year due to the monsoon season. On the other hand, the damage arising from of El Nino on palm crops could mean lower production in the coming months.
According to Bloomberg data, CPO prices have averaged RM2,535 a tonne to date, or at the high end of research house estimates.
Among CIMB’s top picks in the plantation sector are Felda Global Ventures Holdings Bhd (FGV) and Genting Plantations Bhd. It has an “add” call on the two firms with target prices of RM2.76 and RM11.40 respectively.
The research house favours FGV for its business turnaround plan and Genting Plantations for its young estates, solid balance sheet and strong management.