KUCHING: Malaysian Crude Palm Oil (CPO) registered a lower than expected offtake in February 2012 with a 7.9 per cent drop compared with January.
According to HwangDBS Vickers Research Sdn Bhd (HwangDBS Vickers), Malaysia’s CPO output (1.185 million metric tonnes (MT) was slightly below forecast (1.256 million MT), but total exports fell 13 per cent month-on-month (m-o-m) to 1.211 million MT, 14 per cent below the research firm’s expected 1.415 million MT forecast.
Even so, refined palm oil imports jumped 179 per cent m-o-m, and pushed overall stockpile to 2.060 million MT or seven per cent higher than expected.
February demand was seasonally the lowest in the year, but the steep drop indicated more intense competition from Indonesia than HwangDBS Vickers initially projected.
According to the research wing of Kenanga Investment Bank Bhd (Kenanga Research), weakening CPO exports to Pakistan were probably caused by a shift in demand to Indonesia CPO due to the Preferential Trade Agreement (PTA) signed between Indonesia and Pakistan in early February 2012 (which lowered the import duty tariff for Indonesian CPO).
With Malaysia’s general decrease in shipments to countries such as Egypt and Pakistan of 174 thousand MT, the drop in Indonesia’s export tax in October 2011 further exacerbated Malaysia’s exports of CPO.
However according to the research firm, Malaysian exports should recover this month now that soybean supplies look tight, while post-winter demand kicked in with some price adjustments.
According to OSK Research Sdn Bhd (OSK Research), given the narrow discount of US$80 per tonne that palm oil was currently trading at against soybean oil, a correction in soybean price could spark off a sharper correction in palm oil price.
However Kenanga Research noted otherwise saying that, although USDA had cut its global soybean oil production by 0.46 million MT, a reduction in the total consumption was slightly higher at 0.51 million MT.
On the other hand HwangDBS Vickers based its forecast of CPO prices on Brent price of assumption of US$100 per barrel while OSK Research stated that palm oil prices would undergo a price lull after some excitement in the first quarter of this year.
Similarly, it reported, although the current price or RM3,163 was higher than its assumption of RM3,000, price weakness could be seen in the second or third quarter of the year.
Kenanga Research expected limited upside to CPO prices as it currently traded at only a US$82 discount per MT to soybean oil (48 per cent below its five-year average level of US$158 per MT).