Palm oil stockpiles may rise to 2.7 million tonnes
05/01/2018 (The Star Online) - PETALING JAYA: Palm oil stockpiles, which is almost at a two-year high, may rise further to 2.7 million tonnes as at the end of December from 2.56 million tonnes in November last year.
CIMB Equities Research estimated that local palm oil inventories may have increased by 6% month-on-month (m-o-m) to 2.7 million tonnes as at the end of December.
Stocks level is one of the key indicators, to gauge the next direction of the crude palm oil (CPO) prices.
The research unit said in its latest agribusiness report that there were concerns over higher palm oil stocks.
The average CPO prices in December fell 10% m-o-m to the lowest monthly average of RM2,407 per tonne in 2017 on concerns that India’s consumption of palm oil could fall following the 15% hike in import duties in mid-November.
However, the drop has helped to widen CPO’s attractive price discount versus soybean oil to US$200 per tonne recently, from the historical average discount of US$140 per tonne.
“We believe this will help boost demand for CPO,” it added.
A survey by the CIMB Futures team also revealed a 5% m-o-m drop in CPO output in December but palm oil exports is projected to grow by 8% m-o-m from India and the European Union due to stronger demand and restocking activities.
Meanwhile, the Bureau of Meteorology Australia (BoM) recently revealed that a weak La Nina persists in the tropical Pacific.
“But in order for 2017/2018 to be classified as La Nina, the thresholds need to be exceeded for at least three months.
The potential impact of La Nina unusual rainfall in key palm oil regions in Malaysia and Indonesia could potentially reduce palm oil yields due to operational disruptions and fresh fruit bunch failure arising from poor pollination.
“Our recent checks with planters reveal the current potential La Nina has not as yet significantly impacted their operations. There are also concerns that the La Nina could result in below-normal rainfall in Jan and Feb in North and South America, leading to lower soybean supplies, which indirectly benefits palm oil prices.”
The research unit which is neutral on the plantation sector, expect CPO prices to improve as “we head into the seasonally low production season for palm oil in January and Feb.”
It projected CPO prices averaging at RM2,700 per tonne in 2018 against RM2,783 per tonne in 2017. The upside risks include higher CPO prices and output while the downside risks are weaker demand for palm oil and lower CPO prices.
The end-December 2017 palm oil statistics will be released on Wednesday, Jan 10 by the Malaysian Palm Oil Board.