The Star Online (12/10/2018) - PETALING JAYA: Malaysian palm oil stocks rose to an eight-month high at the end of September, increasing 1.4% month-on-month to 2.54mil tonnes, and placing further pressure on crude palm oil (CPO) prices.

While the higher-than-expected rise in stockpiles is negative for CPO prices, analysts say the impact will be offset by higher crude oil prices, which helps boost palm oil usage for biodiesel.

CGS-CIMB Research said the inventory figure for September had come in 2%-3% above its and consensus projections due to lower-than-expected exports.

“This, coupled with lower exports for the first 10 days of October, compared to September, is negative for the CPO price in the near term,” it said in a note.

Palm oil exports rose 47% m-o-m to 1.6mil tonnes, representing the highest monthly exports so far this year.

The stronger exports were due to higher demand from the EU, Pakistan and India.

Moving forward, the research house projects palm oil stocks will rise 5% m-o-m to 2.66mil tonnes at the end of October as production and imports overtake exports and consumption.

Given that the average CPO price for the first nine months of the year is below its expectations, the research house also revised downwards its price forecast for 2018 to RM2,320 per tonne from RM2,700 per tonne.

Maybank Investment Bank Research, meanwhile, expects CPO prices to make a seasonal price recovery in the fourth quarter if the demand seen in September can be sustained for the rest of the year.

“But the upside could be capped by the still ample palm oil and high oilseeds supply.

“Conversely, its price downside is also limited given the widened discounts that palm oil trades against soyoil, rapeseed oil and gas oil which will help stimulate demand,” it said.

The research house maintained its Neutral stance on the sector.

Kenanga Research has a more positive outlook on CPO prices, expecting to see significant improvement in the near term, fuelled by rising demand for alternative vegetable oils from China, Indonesia’s extension of B20 mandate and increasing discretionary blending of biodiesel in the EU.

“We opine that these factors would overshadow the prospective production pick-up in coming months in the determination of CPO price,” it said.

The research house believes the downside to CPO prices is limited at RM2,000 per MT, based on smallholders’ cost of production, while upside is capped at RM2,550 per MT.

It maintained its CPO price forecast for 2018 at RM2,400 per MT and its Neutral stance on the sector.

“The improvements in CPO price and output are unlikely to supersede the earnings shortfall in 1H18, leaving 2018 an unexciting year for most planters,” it said.