KUALA LUMPUR: Malaysia's CPO production rebounded strongly by 20.7% month-on-month (m-o-m) and 15.3% year-on-year (y-o-y) in July to 1.83 million metric tonnes.
For the seven months of 2017, total CPO production was up 14.9% y-o-y. The recovery is in line with expectations, says Affin Hwang Capital Research in its update on Friday, as the sector rebounds from the El Nino phenomenon in 2015/16.
Exports of palm oil rose 1.3% m-o-m to 1.4 million metric tonnes in July on the back of increased buying from key buyers such as China, the EU, the US and Vietnam. From January to July 2017, total palm oil exports increased 6.2% y-o-y to 9.33 million metric tonnes.
Palm oil inventory rose 16.8% m-o-m to 1.78 million metric tonnes or about 1.3 months of exports, its highest inventory in the past 15 months.
Average MPOB locally delivered CPO prices weakened 2.1% m-o-m in July to RM2,529.50 per metric tonne, lagging further behind strengthening soybean oil prices. The soybean oil premium over CPO widened about 13% in July to about US$170 per metric tonne.
Affin Hwang Research notes that chances for El Nino remain elevated with 35% to 45% odds, based on the latest US NOAA climate advisory report.
The research house maintains its CPO average selling price assumption at RM2,600 per metric tonne as it expects “higher production and strengthening of RM against the US$ towards the year-end” adding to downward pressure on CPO prices in H2 of 2017.
It maintains its “neutral” sector rating and stock calls. Kuala Lumpur Kepong Bhd remans its top sector pick for plantation-sector exposure. At the opening bell, the counter was unchanged at RM24.78.