High CPO stocks not a sign for worry, says analysts

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KUCHING: Analysts highlighted that Malaysia still sees reasonable stock to usage ratio for crude palm oil (CPO) amidst its record high inventory level in October at 2.83 million metric tonnes (MT).

According to MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research), although inventory is currently at record high level, Malaysia’s stock-usage ratio is only at 12.3 per cent.

“This is still lower than record high stock-usage ratio of 13.4 per cent recorded in February 2013,” it said in a report yesterday.

“We believe that the ratio is a better indication as it compares inventory against total yearly demand instead of looking at the absolute number of inventory alone.”

Additionally, it expect CPO to be supported by weak ringgit as its competitiveness should increase relative to soybean oil.

To note, Malaysia’s palm oil production unexpectedly increased four per cent month on month to 2.04 million MT due to strong 11 per cent on month surge seen in Sabah.

“We believe that Sabah’s production pattern has changed slightly this year with its peak shifting to October instead of the usual August/September seen historically.

“This could be caused by a change in tree behaviour in Sabah after going through moisture stress period in 1QCY15.

“Nevertheless, overall production in October of 2.04 million MT was still below August’s 2.05 million MT. Hence we maintain our view that seasonal production has started and is likely to decline in November,” said MIDF Research.

The total Malaysia’s export for palm oil increased to 1.71 million MT due to higher export to India. Better demand for palm oil from India may be caused by the stock up activity ahead of Deepavali celebration on November 10.

However, export to China declined to 167,000 MT which consequently dragged the overall Malaysia’s export growth.

Meanwhile, The Ministry of Plantation Industries and Commodities has identified two measures to reduce the crude palm oil stocks, said Minister Datuk Amar Douglas Uggah Embas.

“The first measure, which will be presented to the Cabinet, involves the increase in the use of B10 biodiesel from B7,” he said to reporters after officiating Smallholders’ Transformation Programme here yesterday.

He said the second measure would be the launch of RM100 million Oil Palm Replanting Scheme Incentive (SITS) 2015.

“Our target is the replanting of 83,000 hectares of the trees which are old and unproductive. If SITS 2015 is successful, we hope to reduce the production of CPO to 250,000 tonnes,” he said.