MARKET DEVELOPMENT
Sarawak’s Palm Oil Sector Sees Decline as El Nino Effect Lingers
Sarawak’s Palm Oil Sector Sees Decline as El Nino Effect Lingers
14/11/2016 (Borneo Post) - The plantation sector saw Sarawak’s palm oil production declining the most on a month-on-month (m-o-m) basis for October, followed by Peninsular Malaysia and Sabah respectively.
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), Sarawak production declined the most by four per cent m-o-m to 350,773 metric tonnes (MT).
“This is followed by Peninsular Malaysia in which production slipped two per cent m-o-m to 855,692MT.
“Lastly, Sabah production fell one per cent m-o-m to 471,408 MT,” MIDF Research said.
The research arm added that on a yearly basis, production tumbled 18 per cent, which suggested that the impact of El Nino was still there.
In a sector update, MIDF Research highlighted that Malaysia palm oil inventory level of 1.57 million MT as of end-October 2016 is spot on as per the research arm’s estimate but came in below consensus estimate of 1.67 million to 1.68 million MT.
The research arm believed that consensus have underestimated the impact of lagged El Nino impact which has caused October production to decline two per cent m-o-m (against historical pattern of increasing).
“Against last month, inventory level has inched up by only two per cent m-o-m as production remains very limited.
“Against the same period last year, inventory remains significantly lower y-o-y as it has tumbled 44 per cent y-o-y,” it said.
Meanwhile, MIDF Research noted that export to India dropped 22 per cent m-o-m to 203,898 MT while export to China slipped five per cent m-o-m to 187,204 MT.
The research arm further noted that usage of palm oil may have temporary declined in China in the absence of stocking activity ahead of major festival.
“As for India, the end of stocking activity for Deepavali festival have caused lower demand for palm oil,” it said.
In fact, the research arm of TA Securities Holdings Bhd (TA Research) observed that palm oil exports declined m-o-m across almost all major countries, led by India (down 22.3 per cent), the US (down 10.1 per cent), China (down 5.2 per cent) and Pakistan (down 4.1 per cent).
The research arm has however pointed out that exports to the European Union (EU) increased m-o-m by 31.2 per cent to 226,000 tonnes.
“Exports to India was lower as demand has shifted to soybean oil,” it opined.
The research arm noted that the United States Department of Agriculture (USDA) has reduced India’s palm oil import estimate by 250,000 (down 2.4 per cent) tonnes to 10 million tonnes for marketing year 2016/17 (October 2016 to September 2017).
MIDF Research said that looking forward, Intertek estimates that palm oil exports for the first 10 days of November to fall by 15.7 per cent to 355,000 tonnes.
However, the research arm expected palm oil exports to the EU to continue growing in November 2016 as France’s National Assembly rejected the move to introduce an additional levy on palm oil, thus retaining crude palm oil (CPO) competitiveness against other substitutes.
As mentioned in its previous report, TA Research projected that the weak recovery in yield due to El-Nino effect may hinder future production growth.
“As we have entered into a low-yielding season, we expect production to remain lacklustre going forward,” the research arm said.
The research arm noted that October production was the first decline (down 2.2 per cent m-o-m) since February 2016.
As for MIDF Research’s outlook, the research arm’s key assumptions were export decline of six per cent m-o-m and production decline of two per cent.
The research arm expected export decline as colder temperature in Northern Hemisphere should lead to lower usage of palm oil in China and EU.
“However, the inventory is expected to remain tight as it is only expected to increase by three per cent m-o-m as production is also expected to decline two per cent m-o-m.
“Cargo surveyors’ data shows export decline of 16 per centm-o-m in the first ten days of November,” MIDF Research said.
For production growth, the research arm is using seasonal factor to estimate the two per cent decline.
All in, MIDF Research maintained its ‘positive’ view on the sector. The research arm expected CPO price to remain high at the range of RM2,500 to RM3,000 per MT in the next three months.
On the other hand, TA Research reiterated its ‘underweight’ recommendation for the plantation sector due to rich valuation.
The reseasrch arm opined that the lower fresh fruit bunch (FFB) production growth due to lingering effects of the El Nino, the recent rejection of additional palm oil levy in France and and the current low stockpiles will likely provide some supports to CPO prices for the remainder of 2016.
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), Sarawak production declined the most by four per cent m-o-m to 350,773 metric tonnes (MT).
“This is followed by Peninsular Malaysia in which production slipped two per cent m-o-m to 855,692MT.
“Lastly, Sabah production fell one per cent m-o-m to 471,408 MT,” MIDF Research said.
The research arm added that on a yearly basis, production tumbled 18 per cent, which suggested that the impact of El Nino was still there.
In a sector update, MIDF Research highlighted that Malaysia palm oil inventory level of 1.57 million MT as of end-October 2016 is spot on as per the research arm’s estimate but came in below consensus estimate of 1.67 million to 1.68 million MT.
The research arm believed that consensus have underestimated the impact of lagged El Nino impact which has caused October production to decline two per cent m-o-m (against historical pattern of increasing).
“Against last month, inventory level has inched up by only two per cent m-o-m as production remains very limited.
“Against the same period last year, inventory remains significantly lower y-o-y as it has tumbled 44 per cent y-o-y,” it said.
Meanwhile, MIDF Research noted that export to India dropped 22 per cent m-o-m to 203,898 MT while export to China slipped five per cent m-o-m to 187,204 MT.
The research arm further noted that usage of palm oil may have temporary declined in China in the absence of stocking activity ahead of major festival.
“As for India, the end of stocking activity for Deepavali festival have caused lower demand for palm oil,” it said.
In fact, the research arm of TA Securities Holdings Bhd (TA Research) observed that palm oil exports declined m-o-m across almost all major countries, led by India (down 22.3 per cent), the US (down 10.1 per cent), China (down 5.2 per cent) and Pakistan (down 4.1 per cent).
The research arm has however pointed out that exports to the European Union (EU) increased m-o-m by 31.2 per cent to 226,000 tonnes.
“Exports to India was lower as demand has shifted to soybean oil,” it opined.
The research arm noted that the United States Department of Agriculture (USDA) has reduced India’s palm oil import estimate by 250,000 (down 2.4 per cent) tonnes to 10 million tonnes for marketing year 2016/17 (October 2016 to September 2017).
MIDF Research said that looking forward, Intertek estimates that palm oil exports for the first 10 days of November to fall by 15.7 per cent to 355,000 tonnes.
However, the research arm expected palm oil exports to the EU to continue growing in November 2016 as France’s National Assembly rejected the move to introduce an additional levy on palm oil, thus retaining crude palm oil (CPO) competitiveness against other substitutes.
As mentioned in its previous report, TA Research projected that the weak recovery in yield due to El-Nino effect may hinder future production growth.
“As we have entered into a low-yielding season, we expect production to remain lacklustre going forward,” the research arm said.
The research arm noted that October production was the first decline (down 2.2 per cent m-o-m) since February 2016.
As for MIDF Research’s outlook, the research arm’s key assumptions were export decline of six per cent m-o-m and production decline of two per cent.
The research arm expected export decline as colder temperature in Northern Hemisphere should lead to lower usage of palm oil in China and EU.
“However, the inventory is expected to remain tight as it is only expected to increase by three per cent m-o-m as production is also expected to decline two per cent m-o-m.
“Cargo surveyors’ data shows export decline of 16 per centm-o-m in the first ten days of November,” MIDF Research said.
For production growth, the research arm is using seasonal factor to estimate the two per cent decline.
All in, MIDF Research maintained its ‘positive’ view on the sector. The research arm expected CPO price to remain high at the range of RM2,500 to RM3,000 per MT in the next three months.
On the other hand, TA Research reiterated its ‘underweight’ recommendation for the plantation sector due to rich valuation.
The reseasrch arm opined that the lower fresh fruit bunch (FFB) production growth due to lingering effects of the El Nino, the recent rejection of additional palm oil levy in France and and the current low stockpiles will likely provide some supports to CPO prices for the remainder of 2016.