16/02/2013 (The Star) - Local palm oil stocks are expected to come down gradually in the coming months, with the price of crude palm oil (CPO) poised to strengthen back to the RM2,600-RM2,700-per-tonne level by mid-2013, said analysts.

This came as no big surprise, given the smooth implementation of the Government’s full abolishment of duty-free CPO export quota and the lower CPO export tax rates from 23% to between 4.5% and 8.5% for CPO priced from RM2,250 per tonne beginning early last month.

Analysts generally concur that the effectiveness of the CPO export duty, which is set at zero in January, February and possibly in March, would help to further reduce the current high stock situation.

“We expect the CPO price to recover by the first half of the year on receding stockpile to almost two million tonnes, aided by seasonally weaker CPO production and Malaysia’s new CPO export tax structure.

“This is further supported by the attractively wide CPO price discounts to soy oil,” Maybank Kim Eng Research said.

In January, palm oil stocks declined 2% to 2.58 million tonnes from a record 2.63 million tonnes in December.

Meanwhile, the research house expects palm oil stocks to decrease by 1.9% month-on-month (m-o-m) to 2.53 million tonnes this month, despite a weaker exports projection during the month under review that should be offset by lower production productivity.

Rabobank, a Dutch agriculture bank, in its latest report said: “As export demand remains strong, we expect palm oil stocks to be further drawn down in the coming months to support palm oil prices and reducing the spread on soy oil.”

In the coming months, the seasonally slow palm oil production, the low CPO price and reduced supplies of alternative vegetable oils should allow prices to rise in the second quarter of the year.

Rabobank also expects Malaysia’s palm oil output to fall an average of 2% year-on-year (y-o-y) in the next six months.

“We believe January is the beginning of a trend for lower palm oil production, which has been the primary driver behind record large stockpiles.

“The continued strong export demand, coupled with our expectations for lower palm oil output, should be supportive of prices into the second quarter of this year,” it added.

The Malaysian Palm Oil Board, in its latest palm oil statistics for January, showed that exports had increased 16.69% y-o-y but eased 1.6% m-o-m.

Rabobank said China’s stricter quality requirements, which took effect on Jan 1, had not appeared to impede palm oil imports as Malaysia’s palm oil exports to China rose 23% y-o-y.

The bank also suggested that palm oil demand from China and India was likely to remain strong.

“Imports to India in January were up to 57% to a four-year high for the month.

“However, import demand to India may temper from end-March onwards due to their rapeseed harvest that has a potential to exceed seven million tonnes,” it added.

MIDF Research also opined that due to favourable CPO prices, exports to Bangladesh surged 275.5% y-o-y and that China remained a top export destination, accounting for 16.5% of the total Malaysian palm oil exports.

The third-month benchmark April CPO contract as at 5pm yesterday was traded RM8 lower at RM2,487 per tonne.

Meanwhile, Bloomberg reported that Intertek had estimated palm oil shipments from Malaysia to increase 18% in the first 15 days of the month.

The independent cargo surveyor said the country’s zero-rated tax on exports might help reduce near-record reserves.

Exports climbed to 673,555 tonnes in February from 570,510 tonnes in the same period in January, Intertek said in a statement, matching an 18% gain in the first 10-day period this month.