Malaysia’s CPO production to continue improving in 2H18

KUCHING: Malaysia’s crude palm oil (CPO) production has been forecast by analysts to continue improving in the second half of 2018 (2H18), but at a lower growth rate.

The Malaysian Palm Oil Board’s latest statistics revealed that Malaysia’s CPO production for 1H18 had amounted to 8.92 million MT, up from 8.72 million MT in the corresponding period last year.

“We expect Malaysia’s CPO production to continue to improve in 2H18 and now forecast the production in 2018E to increase by about one to two per cent year on year (y-o-y), lower than the earlier expectation for a four to five per cent y-o-y growth,” Affin Hwang Investment Bank Bhd (Affin Hwang) said.

In Affin Hwang’s opinion, 2H18 exports should continue to be supported by the food and energy industries as well as potential increase in demand from China with the trade tension with the US due to the tariff on soybean products.

“Nevertheless, we think that CPO production would continue to rise and could come in higher than exports and consumption in 2H18.

“Hence, palm oil inventory in Malaysia is likely to stay above the two million metric tonne (MT) level for this year, but below end-December inventory of 2.7 million MT in 2017.”

As for the production of eight major oils, the research firm expected it to increase in 2018 to 2019 season.

“Despite growth in usage which is expected to be higher than the growth in production for 2018-19E, the stock-usage ratio for the eight major oils is expected to remain flat at 14.2 per cent partly due to the higher opening stocks.”

According to Affin Hwang, the price of vegetable oils, including palm oil, have been under pressure with the improvement in global production coupled with the trade tensions between the US and China.

The research firm highlighted that the three-month CPO futures have been on a downtrend since late-2017, hitting a low of RM2,147 per MT on July 13, 2018, the lowest level since September 2015.

Factoring in a CPO average selling price (ASP) of RM2,100 per MT to RM2,400 per MT in 2H18, Affin Hwang now forecasted a 2018 average CPO price of RM2,350 per MT, down from RM2,500 per MT previously.

“We expect CPO ASP to improve to RM2,400 per MT to RM2,500 per MT for 2019-20E with the improvement in demand for palm oil products, progress in biodiesel adoption globally and increasing chances for El Nino to make an appearance.”

Affin Hwang noted that the El Ni?o-Southern Oscillation (ENSO) cycle can greatly influence the global weather, as these cycles can alter the normal weather patterns and surface temperatures, which can cause major disruption to the world’s agricultural production and supply.

“Based on the US National Oceanic and Atmospheric (NOAA) climate advisory report, the tropical Pacific has remained ENSO-neutral. The neutral condition is likely to continue through summer 2018.

“Thereafter, there is a 65 per cent chance for El Nino to make an appearance during the fall and rising to a circa 70 per cent possibility by winter 2018 to 2019.”

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