Malaysian palm oil futures declined on Monday evening, charting a second session of decline in three, as the market was pulled down by weaker demand and overnight losses in U.S. soyoil.
KUALA LUMPUR: Malaysian crude palm oil (CPO) output likely grew 1.6% month-on-month to 1.6 million tonnes in April 2018, according to a survey of 23 plantation areas by the CIMB Futures team.
Palm oil exports likely fell 5.1% month-on-month, based on export statistics released by Societe Generale de Surveillance (SGS) and Amspec Malaysia.
“Overall, we estimate that Malaysian palm oil inventory may have declined 2% month-on-month to 2.28 million tonnes as at end-April 2018. The official figures will be released on May 10, 2018 (Thursday),” it said.
Fresh fruit bunches (FFB) output rose due to seasonal factor. The projected 2% month-on-month rise in CPO output is lower than the historical April average month-on-month increase of 4.3% over the past 10 years but in line with its earlier estimate of a 2% month-on-month rise in output.
“We attribute the lower-than-historical average month-on-month rise in output to replanting efforts by estates.
“Our survey revealed that estates in Sabah posted weaker month-on-month production but this was offset by higher production from Sarawak,” it said.
CIMB Research estimated that Malaysian palm oil exports fell c.5% month-on-month in April 2018, based on estimates from cargo surveyor SGS (-4.5% month-on-month) and Amspec Malaysia (-5.7%).
The month-on-month decline in exports in April was due mainly to weaker demand from India (-39% month-on-month) and the US (-5% month-on-month) though this was partially offset by stronger demand from China, Europe and Pakistan.
Average CPO prices fell 0.3% to RM2,418 per tonne in April 2018. This could be due partly to India’s move to raise import duties on CPO by 14% pts to 44%, which could lead to lower exports, as well as expectations of recovering palm oil supplies and Malaysia’s plans to reinstate export tax to 5% in May following a four-month suspension.
“However, these are partly offset by a prolonged drought which is affecting Argentina’s soybean crops, and improving demand for biodiesel due to higher crude oil prices.
“The recent rise in crude oil price to a 3.5-year high of US$74 per barrel could help revive or boost demand for biodiesel.
“On top of this, it was recently reported that Indonesia’s Energy Ministry is aiming to allocate 3.46m kls of biodiesel in 2018 as it plans to expand the mandatory biodiesel use to the train sector from May and the mining sector from July.
“This represents an increase from Indonesia’s biodiesel usage of 2.54m kls in 2017 and earlier projected 2.89m kls in 2018 from the transportation and power sectors alone,” it said.
CIMB Research said the anticipated lower palm stockpile for April was neutral for CPO prices as it will be offset by higher export tax for CPO from Malaysia in May and concerns over rising supply in the coming months.
“We project CPO prices to trade within RM2,300 to RM2,500 per tonne in May and average at RM2,700 per tonne in 2018F.
“Upside risks: higher CPO prices and stronger demand for palm oil. Downside risks: weaker demand for palm oil and lower CPO prices. Our top regional picks are Genting Plantation, Wilmar and First Resources,” it said.
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