13/01/2008 (The Malaysian Insider), Kuala Lumpur - Malaysia's oil palm inventory eased to 1.995 million tonnes in December last year due to a combination of record exports and the low production season.

Some 70 per cent of export increase was due to a spike in purchases from India. However, OSK Research says that this is not a sustainable trend.

Exports surged in December to a record high of 1.611 million tonnes jumping 19.3 per cent month on month and 18 per cent year on year.

The exports were caused by attractive prices after steep declines last year and an improving credit market.

The top export destinations were India (172,500 tonnes), Netherlands (43,800 tonnes) and the US (40,100 tonnes).

Exports to China declined by 20,800 tonnes. OSK Research sees two scenarios for the sharp rise in exports to India: either it was for replenishment meaning there will be no repeat for December or it was because Indonesia blacklisted some Indian buyers for not honouring contracts which would mean Malaysian exporters would be exposed to high risk buyers.

On a year to date basis, exports totalled 15.41 million tonnes, up 12.1 per cent over 2007. India was the biggest growth market, growing by 459,600 tonnes followed by Jordan (370,800 tonnes) and Ukraine (319,500 tonnes).

China remained the largest market overall, importing 3.79 million tonnes followed by the Netherlands (1.3 million tonnes) and Pakistan (1.26 million tonnes).

Prices were better than expected and averaged RM2,843 against the forecast average of RM2,800. OSK Research is maintaining its price assumptions of RM1,650 and RM1,900 per tonne for 2009 and 2010 respectively.

Production eased in December, falling 10.6 per cent month on month to 1.483 million tonnes. "Compared with a 26.2 and 15.4 per cent decline for the same month in 2006 and 2007 respectively, this was a relatively mild drop with weather being gentle the whole of last year," says OSK Research.

"The valuations of plantation stocks are not attractive at this point of time. The sharp downturn in soybean prices will likely weaken palm oil prices and plantation stocks," says OSK Research which is maintaining a neutral outlook on the sector.