MARKET DEVELOPMENT
Plantation’s November Inventory Numbers Garner Mixed Views
Plantation’s November Inventory Numbers Garner Mixed Views
16/12/2016 (Borneo Post) - The plantation sector’s inventory for November has garnered mixed views, either coming in within or slightly below expectations.
Malaysia palm oil inventory level of 1.66 million metric tonnes (MT) as of end-November 2016 was within the research arm of MIDF Amanah Investment Bank Bhd’s (MIDF Research) expectation against its estimate of 1.63 million MT and consensus’ 1.69 million MT.
According to MIDF Research, inventory level has inched up by five per cent month on month (m-o-m) compared with the month before as the impact of export decline of four per cent was neutralised by the decline in production by six per cent.
Against the same period last year, inventory remained significantly lower year on year (y-o-y) as it has tumbled 43 per cent y-o-y.
Meanwhile, November 2016 stocks of 1.66 million MT were slightly below consensus and the research arm of Kenanga Investment Bank Bhd’s (Kenanga Research) 1.69 million MT estimate by two per cent.
Production was weaker-than-expected at 1.58 million MT (down six per cent m-o-m), three per cent under consensus’ 1.63 million MT and seven per cent under the research arm’s 1.69 million forecast, confirming that the production peak had passed earlier than expected in September 2016.
Exports weakened by four per cent to 1.37 million MT, close to Kenanga Research’s expected 1.39 million MT and better than consensus’ expected 1.29 million MT.
“This came despite a drop in Indian demand (down 36 per cent) due to post-festival softness and currency reform as China (up 16 per cent) and other countries (up five per cent) stepped up purchases, likely in view of depleted local stocks,” it said in a sector update.
MIDF Research highlighted that Sabah production declined the most by 10 per cent m-o-m to 424,695 MT. This is followed by Sarawak in which production slipped eight per cent m-o-m to 320,989 MT.
“Lastly, Peninsular Malaysia production fell three per cent m-o-m to 829,251 MT,” it said.
The research arm added that on a yearly basis, production declined five per cent and this suggests that the impact of El Nino is still there.
Kenanga Research expected the production downtrend to continue in December 2016 with an eight per cent decline to 1.45 million MT.
This implied a full-year production of 17.3 million MT, about one per cent below the research arm’s previous expected 17.5 million MT and 13 per cent lower against 2015.
On exports, MIDF Research noted that export to India dropped 35 per cent m-o-m to 131,368 MT in the absence of stocking activity ahead of major festival.
“However, China has increased their purchase of palm oil with export to the country grew by 16 per cent m-o-m to 217,744 MT,” it said.
The research arm believed that China has started their stocking activity ahead of Chinese New Year festival in Januar 2017.
MIDF Research expected December 2016 inventory to increase by only two per cent to 1.7 million MT. The research arm’s key assumptions were export decline of 10 per cent m-o-m and production decline of 11 per cent m-o-m.
“We are expecting export decline as colder temperature in Northern Hemisphere should lead to lower usage of palm oil in European Union.
“However, the inventory is expected to remain tight as it is only expected to increase by 2 per cent m-o-m to 1.70m MT as production is also expected to decline 11 per cent m-o-m.
“Cargo surveyors data shows export decline of 11 per cent m-o-m in the first ten days of December,” it said.
For production growth, the research arm used seasonal factor to estimate the 11 per cent decline.
Looking ahead, Kenanga Research expected exports to stay soft in December 2016 at -3 per cent to 1.33 million MT as major buyer India continues to see cash shortage, while higher crude palm oil (CPO) prices could deter price-sensitive buyers.
Kenanga Research also expected demand at 1.53 million MT to lead supply of 1.5 million MT in December 2016.
“Supply-wise, December 2016 production should continue declining eight per cent to 1.45 million MT in line with seasonal downtrends.
“Meanwhile, demand should also weaken with exports -3 per cent to 1.33 million MT as high CPO prices deter buyers,” it said.
Overall, the research arm forecasted December 2016 stocks to soften slightly by two per cent to 1.62 million MT.
On the CPO price forecast, Kenanga Research noted that recent events have led to a sharp appreciation of the US dollar/ringgit which rose seven per cent to 4.47 in November 2016.
“Over the same period, Brent crude oil prices rose four per cent to US$50.5 per barrel and a further nine per cent to US$55.2 per barrel month-to-date (MTD) December 2016,” the research arm said.
Kenanga Research believed the rapid moves in these CPO pricing elements warranted a review of its model assumptions.
While the research arm is in the midst of this review, it tentatively expected to upgrade current year 2016-2017 estimate (CY16-17E) CPO prices to RM2,600 per MT to RM2,550 per MT from RM2,500 per MT to RM2,400 per MT currently.
Malaysia palm oil inventory level of 1.66 million metric tonnes (MT) as of end-November 2016 was within the research arm of MIDF Amanah Investment Bank Bhd’s (MIDF Research) expectation against its estimate of 1.63 million MT and consensus’ 1.69 million MT.
According to MIDF Research, inventory level has inched up by five per cent month on month (m-o-m) compared with the month before as the impact of export decline of four per cent was neutralised by the decline in production by six per cent.
Against the same period last year, inventory remained significantly lower year on year (y-o-y) as it has tumbled 43 per cent y-o-y.
Meanwhile, November 2016 stocks of 1.66 million MT were slightly below consensus and the research arm of Kenanga Investment Bank Bhd’s (Kenanga Research) 1.69 million MT estimate by two per cent.
Production was weaker-than-expected at 1.58 million MT (down six per cent m-o-m), three per cent under consensus’ 1.63 million MT and seven per cent under the research arm’s 1.69 million forecast, confirming that the production peak had passed earlier than expected in September 2016.
Exports weakened by four per cent to 1.37 million MT, close to Kenanga Research’s expected 1.39 million MT and better than consensus’ expected 1.29 million MT.
“This came despite a drop in Indian demand (down 36 per cent) due to post-festival softness and currency reform as China (up 16 per cent) and other countries (up five per cent) stepped up purchases, likely in view of depleted local stocks,” it said in a sector update.
MIDF Research highlighted that Sabah production declined the most by 10 per cent m-o-m to 424,695 MT. This is followed by Sarawak in which production slipped eight per cent m-o-m to 320,989 MT.
“Lastly, Peninsular Malaysia production fell three per cent m-o-m to 829,251 MT,” it said.
The research arm added that on a yearly basis, production declined five per cent and this suggests that the impact of El Nino is still there.
Kenanga Research expected the production downtrend to continue in December 2016 with an eight per cent decline to 1.45 million MT.
This implied a full-year production of 17.3 million MT, about one per cent below the research arm’s previous expected 17.5 million MT and 13 per cent lower against 2015.
On exports, MIDF Research noted that export to India dropped 35 per cent m-o-m to 131,368 MT in the absence of stocking activity ahead of major festival.
“However, China has increased their purchase of palm oil with export to the country grew by 16 per cent m-o-m to 217,744 MT,” it said.
The research arm believed that China has started their stocking activity ahead of Chinese New Year festival in Januar 2017.
MIDF Research expected December 2016 inventory to increase by only two per cent to 1.7 million MT. The research arm’s key assumptions were export decline of 10 per cent m-o-m and production decline of 11 per cent m-o-m.
“We are expecting export decline as colder temperature in Northern Hemisphere should lead to lower usage of palm oil in European Union.
“However, the inventory is expected to remain tight as it is only expected to increase by 2 per cent m-o-m to 1.70m MT as production is also expected to decline 11 per cent m-o-m.
“Cargo surveyors data shows export decline of 11 per cent m-o-m in the first ten days of December,” it said.
For production growth, the research arm used seasonal factor to estimate the 11 per cent decline.
Looking ahead, Kenanga Research expected exports to stay soft in December 2016 at -3 per cent to 1.33 million MT as major buyer India continues to see cash shortage, while higher crude palm oil (CPO) prices could deter price-sensitive buyers.
Kenanga Research also expected demand at 1.53 million MT to lead supply of 1.5 million MT in December 2016.
“Supply-wise, December 2016 production should continue declining eight per cent to 1.45 million MT in line with seasonal downtrends.
“Meanwhile, demand should also weaken with exports -3 per cent to 1.33 million MT as high CPO prices deter buyers,” it said.
Overall, the research arm forecasted December 2016 stocks to soften slightly by two per cent to 1.62 million MT.
On the CPO price forecast, Kenanga Research noted that recent events have led to a sharp appreciation of the US dollar/ringgit which rose seven per cent to 4.47 in November 2016.
“Over the same period, Brent crude oil prices rose four per cent to US$50.5 per barrel and a further nine per cent to US$55.2 per barrel month-to-date (MTD) December 2016,” the research arm said.
Kenanga Research believed the rapid moves in these CPO pricing elements warranted a review of its model assumptions.
While the research arm is in the midst of this review, it tentatively expected to upgrade current year 2016-2017 estimate (CY16-17E) CPO prices to RM2,600 per MT to RM2,550 per MT from RM2,500 per MT to RM2,400 per MT currently.