CPO stockpiles to swell to three-year high as production increases

KUALA LUMPUR: Crude palm oil (CPO) stockpiles in Malaysia are likely to continue to swell to a three-year high as production in the world’s second-biggest grower increased, said CGS-CIMB Futures Sdn Bhd.

It said the surge comes as Malaysia's ramped up production and exports faced pressure from top producer Indonesia, which has been accelerating shipments to reduce its own stockpiles.

"Swelling inventories in Malaysia could hurt sentiment in the palm oil market after prices jumped

almost 20 per cent in the country last month,” CGS-CIMB said in a research note today.

The firm said Malaysia’s CPO output likely grew 3.2 per cent month-on-month (m-o-m) and 5.8 per cent y-o-y to 1.83 million tonnes in October 2022 due to seasonality factors.

September and October have historically been the peak production months for local palm oil.

Meanwhile, Malaysian palm oil exports likely grew 7.4 per cent m-o-m and 7.6 per cent y-o-y, to 1.53 million tonnes in October, based on export statistics by cargo surveyors Intertek Testing Services (+ five per cent m-o-m), Societe Generale de Surveillance (+5.5 per cent m-o-m) and Amspec Malaysia (+11.7 per cent m-o-m).

The stronger m-o-m palm oil exports from Malaysia could be due to CPO’s attractive pricing discount against soybean oil.

"We estimate Malaysia’s palm oil inventory probably grew 7.5 per cent m-o-m and 35.7 per cent y-o-y to 2.49 million tonnes in end-October 2022, its highest level since April 2019, due to recovering output.

"Our estimate of 2.49 million tonnes for October 2022 palm oil stock level in Malaysia is 15 per cent above the 10-year historical October average of 2.16 million tonnes,” CGS-CIMB said.

Spot CPO prices in Malaysia gained 21 per cent to RM4,190 per tonne during the same period.

The rise in CPO prices was driven by strong demand for palm oil for re-stocking and festive events, due to CPO’s attractive discount of US$535 per tonne against soybean oil as of Oct 27.

"There are also concerns that the recovery in palm oil supplies may be negatively impacted by the ongoing labour shortage situation in Malaysia and by the La Nina event.

"We expect CPO prices to trade in the range between RM3,500 and 4,500 per tonne in November 2022,” it added. - Bernama