KUALA LUMPUR: CIMB Equities Research is maintaining its average crude palm oil (CPO) price forecast of RM2,400 per tonne for 2019F and its neutral view on the sector.
It said on Monday the key risks to its call are lower CPO prices. Its top pick in Malaysia continues to be Genting Plantations.
Malaysia’s palm oil stocks fell 7% on-month (+25% on-year) to a six-month low of 2.73 million tonnes as at end-April 2019.
“This level was in line with our projection of 2.72 million tonnes but was 0.7% below Bloomberg consensus projection of 2.75 million tonnes and 1.4% below Reuters consensus forecast of 2.77 million tonnes. We view the declining palm oil stock to be supportive of near-term CPO prices,” it said.
CIMB Research said CPO production fell 1% million in April due to fewer working days. However, production was 6% higher on-year, driven by better yields from most key palm oil regions in Malaysia except Sabah and Sarawak.
“We are slightly relieved that April production appeared to have eased slightly compared to the bumper harvest in January-March 2019. This will help pare down inventory.
“The 4M19 production grew 9% to 6.6 million tonnes, representing 32.5% of our full-year forecast of 20.3 million tonnes,” it said.
Palm oil exports grew 2% on-month and 8% on-year to 1.65 million tonnes in April, slightly higher than its forecast of 1.63 million tonnes, due to stronger demand from China and India.
The good news is that the April export figure was the highest ever April exports recorded by Malaysia, suggesting that the low CPO price helped boost demand.
Malaysia's palm oil imports have declined by 53% on-month to 62,000 tonnes in April 2019, which has helped to cut stockpile.
“We project palm oil stocks to fall 7% on-month to 2.54 million tonnes at end-May 2019F as exports and consumption exceed production and imports.
“We expect May 2019F palm oil output to fall 1% on-month due to the start of the fasting month which may impact estate workers’ productivity, while exports are projected to also fall by 2% on-month.
“The sharper drawdown in CPO stocks in Malaysia for April is likely to be supportive of prices amidst concern of lower soybean oil prices (key substitutes) and escalating US-China trade tensions which may impact growth.
“Current palm oil stock of 2.73 million tonnes remains high relative to five-year historical average of 2.07m tonnes. We expect the CPO price to trade in the range of RM1,900-RM2,300 per tonne in May. Key events to watch in May are execution of the biodiesel mandate, palm oil output and exports data, crude oil price and extreme weather events,” it said.
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