KUCHING: Malaysia’s crude palm oil (CPO) inventory for June has been projected by analysts to either be flat or even decline, while also expecting limited likelihood of a strong demand surge for Malaysian palm oil going forward.
For June, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) expected supply at 1.58 million metric tonnes (MT) to marginally come in over demand of 1.56 million MT leading to slightly higher stocks of one per cent to 2.19 million MT.
“Production is likely to be flat on lower productivity in the festival period, while exports might only see slight recovery given attractive biodiesel prospects,” Kenanga Research said.
“However, with reports of ample supply in Indonesia, concurrent with the lifting of European Union (EU) biodiesel anti-dumping duties on Indonesia and Argentina, we see limited likelihood of a strong demand surge for Malaysian palm oil going forward.”
Coupled with prospective production growth after the current lull season, the research arm continued to expect a weaker CPO price outlook in the second half of 2018 (2H18).
In contrast, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) projected June inventory to decline three per cent to 2.11 million tonnes.
MIDF Research expected export to be flat month on month (m-o-m) at 1.53 million tonnes as we expect demand to improve after India restocking activity.
“For production, we expect an increase of nine per cent m-o-m to 1.66 million tonnes due to seasonal factor.”
The Malaysian Palm Oil Board’s (MPOB) latest statistics regarding the closing stock of oil palm products for May 2018 revealed the amount to be 2.17 million while production of CPO for May 2018 amounted to 1.53 million.
May 2018 stocks of 2.17 million metric tons (MT) was close to Kenanga Research’s flat forecast of 2.18 million MT but four per cent higher than consensus’ forecasted 2.09 million MT.
“Production was slightly lower at 1.53 million MT, better than consensus’ 1.49 million MT but short of our 1.7 million MT estimate as weaker production was seen in Peninsular Malaysia and Sabah due to lower number of working days,” the research arm said.
“May exports dropped 16 per cent to 1.29 million MT as demand from India plunged 75 per cent to 75,000 MT which we think was due to unfavourable tax structure and early buying ahead of festival season having been completed in prior months.”
For June, Kenanga Research expected largely stable demand, with improvement in EU as the price difference between CPO and crude oil continues to narrow to circa US$55 per MT currently, versus the year to date (YTD) average of circa US$130 per MT.
As such, the research arm forecasted June 2018 exports to improve three per cent to 1.33 million MT.
As for MIDF Research, Malaysia palm oil inventory level of 2.17 million tonnes as of end-May was higher than expected as compared to its and consensus estimate of 2.11 million tonnes and 2.09 million tonnes, respectively.
“The decline of 16 per cent m-o-m in export volume was more severe than estimated.
“This could be explained by unusually low export to India in which it has declined by 75 per cent m-o-m to 75,269 tonnes.”
The research arm believed that the key consumers in India may be taking a wait and see approach on whether India government will implement import duty on other soft oils (besides palm oil).
MIDF Research noted that EU demand also weakened as export to the region declined 34 per cent m-o-m to 136,159 tonnes.
“Although China export improved by 42 per cent m-o-m to 193,137 tonnes, it was not enough to offset the decline in export to India and EU.”
Overall, as the latest inventory data came in above market expectation, MIDF Research expected the impact to slightly negative to CPO price.
Having said that, the research arm believed that the downside is limited due to support from Indonesia biodiesel industry.
“While export numbers in the first 10 days declined 20 per cent, we expect export performance to improve.
“We expect better demand from India as we expect some restocking activity after the country decides on whether to increase import duty on other edible oils.”