MARKET DEVELOPMENT
Lower Production in Sabah, Sarawak Drags CPO Production in September
Lower Production in Sabah, Sarawak Drags CPO Production in September
12/10/2016 (Borneo Post) - Crude palm oil (CPO) production in September grew slightly by 0.8 per cent month on month (m-o-m), dragged by lower production in East Malaysia.
Analysts with Affin Hwang InvestmentBankBhd(AffinHwang Capital) observed that CPO production in September rose by 0.8 per cent m-o-m to 1.72 million metric tonnes (MT).
“Production in Peninsular Malaysia grew by 2.7 per cent mom but was offset by the drop in production in Sabah and Sarawak, which declined by 0.5 per cent and 1.9 per cent m-o-m, respectively,” it said in a note yesterday.
“In the first nine months of 2016 (9M16), CPO production was 12.59 million MT, down 15.3 per cent year on year (y-o-y) and accounting for 68 per cent of Oil World’s 2016 forecast of 18.4 million MT.”
Meanwhile, September’s CPO inventory level is within the expectations of MIDF Amanah Investment Bank Bhd (MIDF Research).
“Malaysia’s palm oil inventory level of 1.55 million MT as of end- September 2016 is the same as our estimate and close to consensus estimate of 1.51 million MT,” it highlighted in another report.
“Against last month, inventory level has increased six per cent as export declined 20 per cent while production growth remains limited at less than one per cent.”
Having said that, MIDF observed that inventory remains significantly lower on a yearly comparison as it tumbled 41 per cent y-o-y.
This was likely caused by a temporary slowdown in demand from China and India, it said.
“Exports to India dropped 40 per cent m-o-m to 262,301MT while exports to China declined 34 per cent m-o-m to 197,555 MT,’ it calculated.
“Usage of palm oil may have temporary declined in China in the absence of stocking activity ahead of major festival.
“As for India, the high price of CPO – reaching RM3,000 per MT – may have caused the price sensitive consumers to delay their purchase. Note that average CPO price for September is RM2,862 per MT or 10 per cent higher.
“We expect the low demand situation to be short-lived as CPO price is likely to regain its competitiveness as the discount against soybean oil has widened.”
AffinHwang Capital noted that the weather has returned to normal in key planted areas.
Forecasts for La Nina this fall has declined to around 40 per cent in August from 55 to 60 per cent in July.
“The ENSO (El Nino-Southern Oscillation) conditions are likely to stay neutral through fall,” it added. “Given the effect of the last El Nino, production in 2016 is expected to remain lower y-o-y.
“In October, we believe that production on a monthly basis is likely to be flattish or slightly higher only.”
This led the firm to maintain a neutral call on plantations, keeping its CPO average selling price (ASP) assumption at RM2,400 per MT.
MIDF Research is staying optimistic with its positive view on the sector as it expects CPO price to remain high at the range of RM2,500 to RM3,000 per MT in the next three months.
Analysts with Affin Hwang InvestmentBankBhd(AffinHwang Capital) observed that CPO production in September rose by 0.8 per cent m-o-m to 1.72 million metric tonnes (MT).
“Production in Peninsular Malaysia grew by 2.7 per cent mom but was offset by the drop in production in Sabah and Sarawak, which declined by 0.5 per cent and 1.9 per cent m-o-m, respectively,” it said in a note yesterday.
“In the first nine months of 2016 (9M16), CPO production was 12.59 million MT, down 15.3 per cent year on year (y-o-y) and accounting for 68 per cent of Oil World’s 2016 forecast of 18.4 million MT.”
Meanwhile, September’s CPO inventory level is within the expectations of MIDF Amanah Investment Bank Bhd (MIDF Research).
“Malaysia’s palm oil inventory level of 1.55 million MT as of end- September 2016 is the same as our estimate and close to consensus estimate of 1.51 million MT,” it highlighted in another report.
“Against last month, inventory level has increased six per cent as export declined 20 per cent while production growth remains limited at less than one per cent.”
Having said that, MIDF observed that inventory remains significantly lower on a yearly comparison as it tumbled 41 per cent y-o-y.
This was likely caused by a temporary slowdown in demand from China and India, it said.
“Exports to India dropped 40 per cent m-o-m to 262,301MT while exports to China declined 34 per cent m-o-m to 197,555 MT,’ it calculated.
“Usage of palm oil may have temporary declined in China in the absence of stocking activity ahead of major festival.
“As for India, the high price of CPO – reaching RM3,000 per MT – may have caused the price sensitive consumers to delay their purchase. Note that average CPO price for September is RM2,862 per MT or 10 per cent higher.
“We expect the low demand situation to be short-lived as CPO price is likely to regain its competitiveness as the discount against soybean oil has widened.”
AffinHwang Capital noted that the weather has returned to normal in key planted areas.
Forecasts for La Nina this fall has declined to around 40 per cent in August from 55 to 60 per cent in July.
“The ENSO (El Nino-Southern Oscillation) conditions are likely to stay neutral through fall,” it added. “Given the effect of the last El Nino, production in 2016 is expected to remain lower y-o-y.
“In October, we believe that production on a monthly basis is likely to be flattish or slightly higher only.”
This led the firm to maintain a neutral call on plantations, keeping its CPO average selling price (ASP) assumption at RM2,400 per MT.
MIDF Research is staying optimistic with its positive view on the sector as it expects CPO price to remain high at the range of RM2,500 to RM3,000 per MT in the next three months.