MARKET DEVELOPMENT
Better Demand for Palm Oil in April as Production Grows
Better Demand for Palm Oil in April as Production Grows
15/05/2014 (Borneo Post) - Analysts note stronger demand for crude palm oil (CPO) in April as stock levels increased five per cent month-on-month (m-o-m) to rest at 1.55 million metric tonnes (mt).
Overall, production growth of four per cent m-o-m exceeded demand growth of one per cent which caused inventory to increase by five per cent or 0.08 million mt to 1.77 million mt in April this year.
Looking ahead, analyst Alan Lim from the research arm of Kenanga Investment Bank Bhd (Kenanga Research) expect May’s inventory to increase by five per cent to 1.85 million mt.
“We believe May’s total supply of 1.71 million mt should exceed total demand of 1.62 million mt. Overall, this should cause inventory level to increase by 0.09 million mt to 1.85 million mt in May,” he said in a report yesterday.
“On the demand side, we expect 10 per cent export growth due to demand improvement resulting from warmer weather in the Northern Hemisphere as well as stocking-up demand from India and Pakistan.”
Despite the higher inventory expected, Lim said the downside in CPO prices should be limited as prices below RM2,600 per mt should spur discretionary demand from local biodiesel producer in Indonesia to secure additional supply again to fulfil the high biodiesel mandate.
Meanwhile, RAM Ratings Services Bhd (RAM Ratings) in its inaugural publication of the quarterly crude palm oil (CPO) price outlook yesterday revised its 2014 CPO price forecast upwards due to weather-related supply constraints in the first half of the year.
“For the full year, we expect CPO prices to average between RM2,500 and RM2,600 per mt compared to our earlier forecast of RM2,300-RM2,500 per mt.
“The CPO price averaged a strong RM2,674 per mt in 1Q14 (an increase by 6.8 per cent year-on-year% y-o-y) and is expected to remain firm in the second quarter at between RM2,650 and RM2,750 per MT.
Notwithstanding weather concerns, we expect prices to trend lower in 2H 2014 as the industry moves into its peak production cycle.
RHB Research Institute Sdn Bhd (RHB Research) analysts Alvin Tai and Hoe Lee Leng expect palm oil prices to start swinging up once evidence of disappointing production levels become more apparent this quarter as the impact of 2013’s dryness sets in.
“The current rise in inventory is unlikely to be sustained, especially when exports pick up,” they forewarned. “Indonesia’s biodiesel tender should also help keep palm oil prices to stay resilient.”
Both Kenanga Research and RHB Research maintained their overweight calls on the sector.
Overall, production growth of four per cent m-o-m exceeded demand growth of one per cent which caused inventory to increase by five per cent or 0.08 million mt to 1.77 million mt in April this year.
Looking ahead, analyst Alan Lim from the research arm of Kenanga Investment Bank Bhd (Kenanga Research) expect May’s inventory to increase by five per cent to 1.85 million mt.
“We believe May’s total supply of 1.71 million mt should exceed total demand of 1.62 million mt. Overall, this should cause inventory level to increase by 0.09 million mt to 1.85 million mt in May,” he said in a report yesterday.
“On the demand side, we expect 10 per cent export growth due to demand improvement resulting from warmer weather in the Northern Hemisphere as well as stocking-up demand from India and Pakistan.”
Despite the higher inventory expected, Lim said the downside in CPO prices should be limited as prices below RM2,600 per mt should spur discretionary demand from local biodiesel producer in Indonesia to secure additional supply again to fulfil the high biodiesel mandate.
Meanwhile, RAM Ratings Services Bhd (RAM Ratings) in its inaugural publication of the quarterly crude palm oil (CPO) price outlook yesterday revised its 2014 CPO price forecast upwards due to weather-related supply constraints in the first half of the year.
“For the full year, we expect CPO prices to average between RM2,500 and RM2,600 per mt compared to our earlier forecast of RM2,300-RM2,500 per mt.
“The CPO price averaged a strong RM2,674 per mt in 1Q14 (an increase by 6.8 per cent year-on-year% y-o-y) and is expected to remain firm in the second quarter at between RM2,650 and RM2,750 per MT.
Notwithstanding weather concerns, we expect prices to trend lower in 2H 2014 as the industry moves into its peak production cycle.
RHB Research Institute Sdn Bhd (RHB Research) analysts Alvin Tai and Hoe Lee Leng expect palm oil prices to start swinging up once evidence of disappointing production levels become more apparent this quarter as the impact of 2013’s dryness sets in.
“The current rise in inventory is unlikely to be sustained, especially when exports pick up,” they forewarned. “Indonesia’s biodiesel tender should also help keep palm oil prices to stay resilient.”
Both Kenanga Research and RHB Research maintained their overweight calls on the sector.