KUCHING: The plantation sector has entered into an up-cycle production beginning in April as analysts peg this to last through September or October.
The research arm of BIMB Securities Sdn Bhd (BIMB Research) in a report yesterday said palm oil production for April 2016 had increased 6.7 month-on-month (m-o-m) to 1.3 million tonnes against 1.22 million tonnes in March 2016.
The research firm observed that the increase in production normally experienced between the months of March or April and will last through until September or October.
Nonetheless, it pointed out that the production for the year to date to April fell 14.2 per cent year-on-year (y-o-y) as production was hit by the lag impact of weaker yield from the dry weather experienced in 2015 as well as replanting activities.
During the period, BIMB Research noted fresh fruit bunches (FFB) yield for Malaysia fell to 4.31 tonnes per hectares (ha) against 5.10 tonnes per ha in 2015.
“The FFB yield in Sabah and Sarawak fell by a bigger margin of 16.6 per cent to 4.17 tonnes per ha as compared to Peninsular Malaysia that saw a drop of 14.5 per cent to 4.47 tonnes per ha.
“Hence, FFB production growth and yield will be temporary supressed in the first half of 2016 (1H16) before picking up in 2H16 as more areas enter its fundamental growth maturity and enter the peak crop season.”
Additionally, the research arm of Public Investment Bank Bhd (PublicInvest Research) in another report said crude palm oil (CPO) production gained for the second straight month, up 6.7 per cent m-o-m in April after rising 16.9 per cent in March 2016.
It noted CPO production in Peninsular Malaysia and East Malaysia continued to improve with a rise of 3.9 per cent and 9.9 per cent respectively.
Thus, the research firm expects CPO production to improve further in the following months as the dry weather condition is coming to tail-end.
On another note, PublicInvest Research observed that palm oil inventories dropped for the fifth consecutive months to 1.80 million metric tonne (MT) in April 2016, the lowest in 14 months.
However, it noted the stock-to-usage ratio rose to 10.5 per cent from 10 per cent as CPO production improved while exports declined.
Moreover, the research firm noted palm oil exports in April 2016 softened 12.8 per cent m-o-m after registering a strong demand of 23.1 per cent in March 2016.
It observed the softer exports in April 2016 was attributed to weaker demand from India which dropped by 45.3 per cent, China (-33.1 per cent), European Union (-21.7 per cent) and the US (-17.2 per cent) offset by stronger exports to Pakistan (+60 per cent).
Interestingly, PublicInvest Research noted for the first ten days of May 2016, Malaysia’s CPO exports climbed 22 per cent from a month earlier, according to data compiled by commodity tracker, Intertek.
Likewise, BIMB Securities Research remained cautious on export demand moving forward as the research firm believed demand would be subdued in the coming months due to increased competition from Indonesia as well as from other edible oils especially soybean oil.
It opined that weak crude oil prices have also exacerbated the demand situation making it more challenging to use biodiesel.
However, the research firm noted Pakistan continued to replenish their palm oil stocks to meet higher demand for Ramadhan festivities.
As for CPO price outlook, BIMB Securities Research projected that the price will move between RM2,200 per MT and RM2,800 per MT in 1H16 and expects the price to ease to the range of RM2,200 per MT and RM2,600 per MT in 2H16 as output picks up in July to December period.
The research firm believed its estimation of the price would bring its average CPO price projection to RM2,450 per MT for 2016, a 13.8 per cent increase from last year’s average of RM2,153.50 per MT.
In the meantime, it observed the three month CPO futures price in the month of April has been range bound, trading within RM2,490 per MT and RM2,779 per MT.
Moreover, it noted the Malaysian Palm Oil Board (MPOB) average CPO price year-to-date (YTD) stood at RM2,464.75 per MT, up RM225.12 per MT or 10 per cent against RM2,239.63 per MT recorded in the same period last year.
Conservatively, Affin Hwang Capital maintain its CPO average selling price assumption of RM2,400 per MT in 2016.
On a bullish note, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) expects the CPO price to surge to RM3,000 per MT by the end of June on higher demand during Ramadhan month and higher exports.