KUCHING: While palm oil inventory has increased for its fourth consecutive month in August, plantation industry analysts deemed the increase by 9 per cent month over month (m-o-m) of 1.94 million metric tonnes (MT) was still below expectations.
In two separate updates, the research arms of MIDF Amanah Investment Bank Bhd (MIDF Research) and Kenanga Investment Bank Bhd (Kenanga Research) both said the 1.94 million MT figure fell short of their estimates of 2.10 and 1.96 million MT respectively.
MIDF Research attributed this deviation to a stronger-than-expected export level caused by exports to India and China for pre-stocking activities in light of cultural festivals.
To note, exports to India surged 14 per cent m-o-m to 183,286 MT due to pre-stocking activity for Deepavali, while exports to China rose three per cent m-o-m to 194,251 MT thanks to pre-stocking activity for the Mid-Autumn Festival.
Exports to countries with limited local oilseed production also posted encouraging demand growth with Iran growing 330 per cent to 61,000 MT; Turkey at 65 per cent to 70,000 MT; Japan at 39 per cent to 60,000 MT; and Philippines at 7 per cent to 61,000 MT.
Overall, these increases translated to a 6 per cent m-o-m increase in exports to 1.49 million MT – beating consensus estimates by 1.40 million MT at 6 per cent but still falling short of Kenanga Research estimates of 1.61 million MT by 7 per cent.
“This was offset by weaker demand in the European Union dropping 17 per cent to 177,000 MT,” explained the research arm who added that they are also expecting overall demand to continue on the uptrend to 6 per cent to 1.58 million MT the next month due to the festive season.
As Kenanga Research had already anticipated rising export levels from the upcoming regional festive seasons, they instead attributed the easing productions levels in August to be the main contributing factor to the lower-than-expected inventory.
“August 2017 production was flat at 1.81 million MT, taking a breather from the sharp 21 per cent m-o-m jump in July 2017.
“Seasonal production upswing was on track only in Sarawak at 4 per cent to 392,000 MT as production took a breather in Peninsular Malaysia as it dropped one per cent to 980,000 MT and Sabah dipped five per cent to 438,000 MT,” reported the research arm.
Looking forward, local planters have guided for a continued upswing of production levels areas estimated rise by 5 per cent m-o-m to 1.90 million MT in September by Kenanga Research.
With that in mind, both research furms expect inventory levels to likely cross the 2.0 million MT thresholds while being supported by continued demand in exports.
Despite this, they still retained their ‘neutral’ views on the sector on the whole as they also anticipate better earnings from the sector to be offset by softer price outlook.
MIDF Research anticipates average CPO prices to be maintained by RM2,725 per MT for 2017 and 2018, while Kenanga Research is holding a softer forecast of RM2,500 to RM2,750 MT for FY17.
“While we anticipate further price volatility in the coming months, we maintain our overall neutral outlook as we expect to see solid earnings improvement among planters on higher y-o-y CPO prices and better production,” explained Kenanga Research.