MARKET DEVELOPMENT
Export Growth Rebounds to Positive Territory for Plantation Sector
Export Growth Rebounds to Positive Territory for Plantation Sector
12/06/2015 (Borneo Post) - Crude palm oil (CPO) production in May surpassed its three-year average production for that month, as it rose by 9.3 per cent year on year (y-o-y) to 1.81 million metric tonnes (mmt).
MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) noted that the increase in CPO production was attributable to higher fresh fruit bunch (FFB) yield, which has improved by 8.5 per cent on year.
However, cumulative CPO production for the first five months is still lower compared to that of the same period last year.
The research house added that palm oil exports in May increased to 1.61mmt. The significant improvement in exports was attributable to the higher offtake from the two major buyers, China and India.
“In May, palm oil shipments to China and India increased as they started to stock up their palm oil inventories ahead of Ramadan and the festive season. In 2014, palm oil exports to China and India accounted for 34.9 per cent of the total palm oil exports.
“However, strong take-up from these two major buyers in May was insufficient to lift up the cumulative five months export number. The cumulative palm oil exports for January to May declined,” it said.
Despite higher take up from China, India and the European countries, palm oil inventory in Malaysia continued to increase to 2.24mmt. Higher carry-over palm oil stock from April, coupled with the rise in CPO production brought the inventory higher.
Apart from these, higher palm oil imports in May also cause inventory to inch up. In May, palm oil imports increased to 101,107 metric tonne.
“We believe that that the rise in imports was due to attractive price levels offered by Indonesia. Generally, Indonesia is enjoying a cost advantage of approximately US$15 to US$20pmt vis-à-vis Malaysian producers,” it added.
For the past few weeks, CPO prices have traded higher at around US$610-US$630 pmt.
The positive movement in CPO prices was mainly due to anticipation of the potential disruption in CPO supplies resulting from upcoming severe hot and dry weather conditions.
“We believe that there is still room for CPO price to move up in the next couple of months. Our assumption is premised on unfavourable weather conditions that will curb yields, weaker Ringgit which may stimulate demand, and a wider price gap between CPO and soybean oil.”
According to the United States Department of Agriculture (USDA), global soybean production is projected at 317.3 million tonnes, almost unchanged from 2014/15 with gains in Brazil, India, Paraguay, and Ukraine being offset by reductions in the US, Argentina, and China.
The Argentina soybean crop is projected at 57 million tonnes, down 1.5 million from 2014/15. The Brazil soybean crop is projected to be a record 97 million tons, up 2.5 million. China soybean production is projected at 11.5 million tons, down 0.85 million as producers shift to more profitable crops.
“Against this backdrop, we do not foresee a significant movement in soybean oil prices in the future. We expect soybean prices to continue to trade at the current levels of US$700-US$780pmt. The anticipated subdued movement in soybean oil prices in the next couple of weeks will help to sustain the recent price gap between soybean oil and CPO.
“For the past few weeks, the gap between soybean oil and CPO was about US$125pmt, which is comparatively higher to the YTD average of US$90pmt,” it said.
Currently, the temperatures in the eastern tropical Pacific Ocean continued to show a weak state of El Nino.
The Oceanic Nino Index – the average SST anomalies for March-Apr-May, for the month of April 2015 recorded a temperature of 0.7 Celsius, while the latest weekly temperature in NINO3.4 monitoring area is 1.2oC.
Based on these indicators, most of the international climate models now expect the possibility of a weak to moderate El Nino and this situation may continue until the end of 2015 with a probability of about 80-90 per cent.
Weak El Nino will not significantly affect Malaysia, but moderate El Nino can impose a relatively dry climate, particularly in Sabah and northern Sarawak.
MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) noted that the increase in CPO production was attributable to higher fresh fruit bunch (FFB) yield, which has improved by 8.5 per cent on year.
However, cumulative CPO production for the first five months is still lower compared to that of the same period last year.
The research house added that palm oil exports in May increased to 1.61mmt. The significant improvement in exports was attributable to the higher offtake from the two major buyers, China and India.
“In May, palm oil shipments to China and India increased as they started to stock up their palm oil inventories ahead of Ramadan and the festive season. In 2014, palm oil exports to China and India accounted for 34.9 per cent of the total palm oil exports.
“However, strong take-up from these two major buyers in May was insufficient to lift up the cumulative five months export number. The cumulative palm oil exports for January to May declined,” it said.
Despite higher take up from China, India and the European countries, palm oil inventory in Malaysia continued to increase to 2.24mmt. Higher carry-over palm oil stock from April, coupled with the rise in CPO production brought the inventory higher.
Apart from these, higher palm oil imports in May also cause inventory to inch up. In May, palm oil imports increased to 101,107 metric tonne.
“We believe that that the rise in imports was due to attractive price levels offered by Indonesia. Generally, Indonesia is enjoying a cost advantage of approximately US$15 to US$20pmt vis-à-vis Malaysian producers,” it added.
For the past few weeks, CPO prices have traded higher at around US$610-US$630 pmt.
The positive movement in CPO prices was mainly due to anticipation of the potential disruption in CPO supplies resulting from upcoming severe hot and dry weather conditions.
“We believe that there is still room for CPO price to move up in the next couple of months. Our assumption is premised on unfavourable weather conditions that will curb yields, weaker Ringgit which may stimulate demand, and a wider price gap between CPO and soybean oil.”
According to the United States Department of Agriculture (USDA), global soybean production is projected at 317.3 million tonnes, almost unchanged from 2014/15 with gains in Brazil, India, Paraguay, and Ukraine being offset by reductions in the US, Argentina, and China.
The Argentina soybean crop is projected at 57 million tonnes, down 1.5 million from 2014/15. The Brazil soybean crop is projected to be a record 97 million tons, up 2.5 million. China soybean production is projected at 11.5 million tons, down 0.85 million as producers shift to more profitable crops.
“Against this backdrop, we do not foresee a significant movement in soybean oil prices in the future. We expect soybean prices to continue to trade at the current levels of US$700-US$780pmt. The anticipated subdued movement in soybean oil prices in the next couple of weeks will help to sustain the recent price gap between soybean oil and CPO.
“For the past few weeks, the gap between soybean oil and CPO was about US$125pmt, which is comparatively higher to the YTD average of US$90pmt,” it said.
Currently, the temperatures in the eastern tropical Pacific Ocean continued to show a weak state of El Nino.
The Oceanic Nino Index – the average SST anomalies for March-Apr-May, for the month of April 2015 recorded a temperature of 0.7 Celsius, while the latest weekly temperature in NINO3.4 monitoring area is 1.2oC.
Based on these indicators, most of the international climate models now expect the possibility of a weak to moderate El Nino and this situation may continue until the end of 2015 with a probability of about 80-90 per cent.
Weak El Nino will not significantly affect Malaysia, but moderate El Nino can impose a relatively dry climate, particularly in Sabah and northern Sarawak.