Malaysian palm oil futures climbed to a six-week high in evening trade on Tuesday, charting a third session of gains in four, tracking overnight strength in U.S. soyoil and crude oil prices.
KUALA LUMPUR: CIMB Equities Research estimates that Malaysian palm oil inventory may have declined 4.7% month-on-month to 2.07 million tonnes as at end-May 2018.
It said on Tuesday that findings from a survey of 26 plantation areas by the CIMB Futures team reveal that Malaysian CPO output likely fell by 5.8% month-on-month to 1.47 million tonnes in May 2018.
Palm oil exports likely fell c.9.4% month-on-month, based on export statistics released by Societe Generale de Surveillance (SGS) and Amspec Malaysia.
The official figures will be released on June 11.
“The projected 6% month-on-month decline in CPO output for May is lower than the historical May average month-on-month increase of 7.3% over the past 10 years.
“We attribute the lower-than-historical average month-on-month rise in output to replanting exercises by estates as well as the start of the fasting month of Ramadan on May 17,” it said.
CIMB Futures survey revealed that estates in Sabah posted the weakest month-on-month production, followed by Peninsular Malaysia. Sarawak estates posted the smallest drop in month-on-month production.
“We estimate that Malaysian palm oil exports fell c.9.4% month-on-month in May 2018, based on estimates from cargo surveyor SGS (-9.9% month-on-month) and Amspec Malaysia (-8.8%).
“The month-on-month decline in exports in May was due mainly to weaker demand from India (-64% month-on-month) and the EU (-5% month-on-month), though this was partially offset by stronger demand from China and the US,” it said.
Average CPO prices fell 0.9% month-on-month to RM2,396 per tonne in May 2018. This could be due partly to the impact from India’s move to raise import duties on CPO by 14% pts to
44%, which has resulted in lower palm oil exports to the country.
On top of this, the reinstatement of 5% tax on CPO exports has made Malaysian CPO exports less competitive against refined palm oil.
However, these are partly offset by lower soybean crops from Argentina, and improving demand for biodiesel due to higher crude oil prices.
“Our recent conversation with some biodiesel producers in Malaysia and Indonesia revealed that the recent rise in crude oil price to a 3.5-year high of US$74 per barrel has helped revive or boost demand for biodiesel.
On top of this, it was recently reported that Indonesia’s Energy Ministry is aiming to raise Indonesia’s biodiesel mandate to at least 25% in 2019.
This could bring Indonesia’s biodiesel consumption to between 5.5 million and 6 million kls, which is significantly higher than the biodiesel consumption of 2.57 mil kls in 2017 and 3.52 mil kls target for this year.
If executed, this will be bullish for the CPO price in 2019.
“The anticipated lower palm stockpile for May is slightly positive for CPO prices though this is partly offset by concerns over weak demand from its key market, India.
“We project CPO prices to trade within RM2,300 to RM2,600 per tonne in Jun 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 Plantations, Wilmar and First Resources,” it said.
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