MARKET DEVELOPMENT
24-11-2001
IVAN WONG COMMENTS ON MALAYSIAN PALM OIL
KUALA LUMPUR, Nov 23 - MPOB reported CPO production rose 3.7 percent or40,300 tonnes to 1.141 million tonnes in October. The bulk of the increasewas accounted by East Malaysia where production rose 30,500 tonnes or 7.5percent to 437,300 tonnes.Peninsular Malaysia posted a slight increase of 9,800 tonnes or 1.4percent. On an annual basis, production in the country shrank 3.5 percentor 42,100 tonnes. Over 80 percent of the contraction was acounted byPeninsular Malaysia where output fell 4.8 percent.As stated in previous reports, the negative growth in yields andproduction will get worse. This reflected mainly a "correction" from thenear-record high yields registered in the corresponding months of lastyear. For the three month-period ending December we estimate output toregister a contraction of eight percent or 275,000 tonnes. We are alsomaintaining our estimate of an 11.65 million tonnes output, possibly more,for the whole of this year. Seasonally, production in November isestimated to decline nine percent from October.Palm oil offtake recovered vigorously to 1.04 million tonnes inOctober from the abnormally low level of 792,000 tonnes in the precedingmonth. Exports alone recovered 247,000 tonnes to nearly 900,000 tonnes.MPOB's figures show big increases in shipments (in thousand tonnes) to thefollowing countries: Pakistan 103.2 +69.8, European Union (EU) 155.6+63.3, India 141 +57.9, China 175.3 +37.7 and Turkey 35.1 +33.3.Notwithstanding the robust October shipments, combinedSeptember-October exports at 1.55 million tonnes still show a bigcontraction of 245,500 tonnes or 13.7 percent when compared to the sameperiod last year. However, there is a 49 percent probability combinedexports in the last two months of the year will match the year-agofigures.Exports in November alone are tentatively estimated at 935,000 tonnes.Should that be realised, then we can look forward to a year-ending palmoil stock level of not more than 1.14 million tonnes. Such a stock levelmay be considered as manageable in the context of the forthcoming leanproduction period in January-March. It may also be construed as ample interms of stock-usage ratio.Palm oil stocks amounted to 1.34 million tonnes at end October. Thisis 123,400 tonnes more than month earlier but around 70,000 tonnes lowerthan a year ago and significantly below the burdensome near-record highlevel of 1.52 million tonnes at end January this year. More importantly,stocks will start to decline this month. Our tentative estimate shows amoderate drawdown of 40,000 tonnes to 1.3 million tonnes at end November.While the palm oil stocks outlook may appear encouraging, the marketshould not ignore the dismal PKO stocks situation. Continued sluggishofftake in the last four months had resulted in a continuous buildup tonew record high stocks culminating at 353,100 tonnes at end October or23,000 tonnes above our estimate. This constituted 3.28 times offtake.Inclusive of the buildup in stocks of PK, stocks of PK/PKO, oil basis,reached a burdensome new record level of 407,000 tonnes. In terms of bulkstorage tank utilisation, it is worth noting PO and PKO had taken up acombined storage space of 1.69 million tonnes at end October.There is a 50 percent chance stocks of PKO will rise further at theend of this month. In October the price of PKO in the domestic marketaveraged 10 ringgit below the price of CPO. The discount had widened to20-45 ringgit in recent weeks. With demand for PKO by oleochemicals at amaximum, this oil will have to price itself at even wider discounts if itis to see a meaningful and sustained rise in demand in the edible oilssector.CPO futures lost 77-73 ringgit over three trading days to more thanerase the gains chalked up on November 12 following the MPOB report. Thecontract February settled at 1,096 ringgit on Friday, November 16 andbrought losses for the week to 36 ringgit. However, fresh speculativebuying in the last two days enabled the market to rebound as much as 47ringgit with February contract settling at 1,143 ringgit yesterday.
