KUCHING: Malaysia’s palm oil inventory level of 2.19 million metric tonnes (MT) for October, as per Malaysian Palm Oil Board’s (MPOB) monthly closing stock of oil palm products, is close to market expectation but higher than analysts’ estimates.
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), Malaysia palm oil inventory level of 2.19 million MT as of end-October 2017 is close to market expectation of 2.2 million MT.
“However, it is higher than our estimate of 2.09 million MT as production came in stronger than expected,” MIDF Research said.
The research noted that October production increased by 13 per cent month on month (m-o-m) against its expectation of three per cent increase.
As per MPOB’s monthly productionof oil palm products summary, crude palm oil production for October amounted to 2.01 million MT, up 13 per cent m-o-m and 20 per cent year on year (y-o-y).
“Despite the double digit growth in production, we are not overly concerned as it came from a low base in September which has lower working days due to four days of public holidays.
“We also believe that production has peaked in October and expect November production to decline six per cent m-o-m,” the research arm said.
Overall, MIDF Research was neutral on the latest MPOB stats as it falls within market expectation.
“Strong soybean oil price should continue to support palm oil price,” it added.
MIDF Research highlighted that in Malaysia, local usage of palm oil has increased by 35 per cent mom to 303,995 MT in October.
As the usage for food usually does not fluctuate much, the research arm believed that the additional demand is likely to be caused by good demand from the biodiesel industry.
“The import of palm oil from Indonesia has dropped significantly by 67 per cent mom to 13,479 MT,” it said.
“This is an indication that the biodiesel demand is good in Indonesia and hence limits the amount of palm oil to be exported out of the country.”
Although MIDF Research expected November inventory to increase, the growth is likely to slow down to five per cent (from October’s eight per cent increase) as production is expected to decline by six per cent m-o-m.
The research arm also expected export to decrease three per cent m-o-m which is close to the 2.5 per cent decline in the first ten days of November.
“The seasonal decline in palm oil demand is due to the upcoming winter in Northern Hemisphere.
“Note that the usage of palm oil tend to be lower during winter as it solidifies in cold temperatures.
“For production growth we are using seasonal factor to estimate the six per cent decline,” MIDF Research said.
All said, the research arm expected November inventory of 2.3 million MT while maintaining its palm oil price forecast of RM2,825 per MT for 2017 and RM2,900 per MT for 2018.