MARKET DEVELOPMENT
CPO Production Plunges in December, Inventory Drops
CPO Production Plunges in December, Inventory Drops
13/01/2016 (Borneo Post) - Production of crude palm oil (CPO) plunged in the final month of 2015 as MIDF Amanah Investment Bank Bhd (MIDF Research) said tree stress impact kicked in for local plantation companies.
According to figures from the Malaysian Palm Oil Board (MPOB), production overall dropped by 15 per cent month on month (m-o-m), with Peninsular Malaysia leading the decline by 17 per cent m-o-m to 673,000 metric tonnes (MT) followed by Sabah (16 per cent m–o-m decline to 432,000MT) and Sarawak (nine per cent m-o-m drop to 294,000MT).
The November to December 2015 decline rate was higher than the past five-year (from 2010 to 2014) corresponding monthly period average decline of 12 per cent m-o-m, observed MIDF Research.
“Hence, we believe that the tree stress impact has started to kick in as a result of lagged effect from El Nino,” it said in a report yesterday. “Recall that Australia Bureau of Meteorology has officially announced an El Nino condition on May 12, 2015.”
Meanwhile, Maybank Investment Bank Bhd (Maybank Research) observed that the MPOB’s December 2015 inventory finally eased to 2.63 million MT from its record level of 2.91 million MT the month before.
This, it said, was mainly on seasonally lower CPO production by 15 per cent m-o-m while exports were surprisingly strong at 1.48 million MT.
“Meanwhile, domestic consumption jumped 36 per cent m-o-m to 0.28 million MT, registering an increase by 38 per cent year on year. Still, by historical measures, the 2.63 million MT stockpile is considered relatively high,” it said.
“For spot CPO price to have a strong and sustained upside, the stockpile needs to drop closer to the psychological two million MT benchmark level.
“Initial export estimates in Jan remain healthy CPO production is on a seasonal decline and will post its lowest output in February 2016. Despite the production decline, preliminary export estimates for the first 10 days of Jan by independent cargo surveyor Intertek suggest a healthy 15 per cent m-o-m increase to 0.32 million MT.
“Although still early days, sustained positive export growth in Jan will surely help drawdown inventories further, boosting spot prices.”
Maybank Research went on to highlight El Nino’s situational optimism in the first half of the year.
“The Northeast monsoon has brought back the much needed rainfall in latter 2015, but the El Nino damage has been done with the market expecting fresh fruit bunch yields to be sharply lower YoY in 2016, especially for areas badly affected by the Augusut to October 2015 dry spell,” it detailled.
“This situational play should benefit CPO price in general as it typically more than compensates for the decline in production. A further drawdown in inventories will help narrow the price gap between the spot and three-month futures CPO price.”
This led the firm to maintain its view that CPO price could trend higher in early 2016 and peak sometime in March to May 2016 with the possibility of hitting RM2,700 per tonne.
“But we would turn cautious towards August 2016, anticipating sharp CPO price correction in view of seasonally peak CPO output period,” it forewarned.
According to figures from the Malaysian Palm Oil Board (MPOB), production overall dropped by 15 per cent month on month (m-o-m), with Peninsular Malaysia leading the decline by 17 per cent m-o-m to 673,000 metric tonnes (MT) followed by Sabah (16 per cent m–o-m decline to 432,000MT) and Sarawak (nine per cent m-o-m drop to 294,000MT).
The November to December 2015 decline rate was higher than the past five-year (from 2010 to 2014) corresponding monthly period average decline of 12 per cent m-o-m, observed MIDF Research.
“Hence, we believe that the tree stress impact has started to kick in as a result of lagged effect from El Nino,” it said in a report yesterday. “Recall that Australia Bureau of Meteorology has officially announced an El Nino condition on May 12, 2015.”
Meanwhile, Maybank Investment Bank Bhd (Maybank Research) observed that the MPOB’s December 2015 inventory finally eased to 2.63 million MT from its record level of 2.91 million MT the month before.
This, it said, was mainly on seasonally lower CPO production by 15 per cent m-o-m while exports were surprisingly strong at 1.48 million MT.
“Meanwhile, domestic consumption jumped 36 per cent m-o-m to 0.28 million MT, registering an increase by 38 per cent year on year. Still, by historical measures, the 2.63 million MT stockpile is considered relatively high,” it said.
“For spot CPO price to have a strong and sustained upside, the stockpile needs to drop closer to the psychological two million MT benchmark level.
“Initial export estimates in Jan remain healthy CPO production is on a seasonal decline and will post its lowest output in February 2016. Despite the production decline, preliminary export estimates for the first 10 days of Jan by independent cargo surveyor Intertek suggest a healthy 15 per cent m-o-m increase to 0.32 million MT.
“Although still early days, sustained positive export growth in Jan will surely help drawdown inventories further, boosting spot prices.”
Maybank Research went on to highlight El Nino’s situational optimism in the first half of the year.
“The Northeast monsoon has brought back the much needed rainfall in latter 2015, but the El Nino damage has been done with the market expecting fresh fruit bunch yields to be sharply lower YoY in 2016, especially for areas badly affected by the Augusut to October 2015 dry spell,” it detailled.
“This situational play should benefit CPO price in general as it typically more than compensates for the decline in production. A further drawdown in inventories will help narrow the price gap between the spot and three-month futures CPO price.”
This led the firm to maintain its view that CPO price could trend higher in early 2016 and peak sometime in March to May 2016 with the possibility of hitting RM2,700 per tonne.
“But we would turn cautious towards August 2016, anticipating sharp CPO price correction in view of seasonally peak CPO output period,” it forewarned.