By A. Stephanie
CIMB’s equities research arm expects Malaysian palm oil stocks to hit a five-month high of 2.24 million tonnes for April, following the the banking group’s futures team’s survey of 22 planters, a report today revealed.
This, CIMB Research said, could be the first time this year that stocks climb above the psychological level of two million tonnes.
It added that the rising inventory level and stronger ringgit could pressure crude palm oil (CPO) prices in the second quarter, the only positive news for CPO prices being the potential demand increase ahead of the Ramadan festival and El Nino event.
The research house said its futures sister team found that Malaysian palm oil output in April surged 13.2% month-on-month (m-o-m) to 1.69 million tonnes. This is in direct contrast to dropping palm oil exports, which fell by around 5.5% to 7.5% m-o-m in April, according to cargo surveyors SGS and Intertek.
The report preempts official figures which will be released by the Malaysian Palm Oil Board (MPOB) next Monday, May 11.
CIMB Research said: “Overall, we estimate that stocks could climb by 20% m-o-m to hit a five-month high of 2.24 million tonnes at end-April 15. This is negative for CPO prices, as it suggests increasing burdensome palm oil inventory in the market.”
Thus, the regional research house maintained its “neutral” rating on the sector rating due to the lack of catalysts and disappointing first quarter (1Q) results from the planters.
CIMB Research’s top pick among planters is Singapore Exchange (SGX)-listed First Resources because of its young estates in Kalimantan, Indonesia.
Its analyst said the strong surge in Malaysian palm oil output last month signals the end of biological tree stress, as well as flooding in fourth quarter 2014 (4Q14) that adversely affected estates’ yield in 1Q15.
“The exports of palm oil were weak, falling by around 13% year-on-year (y-o-y) based on our estimates, possibly due to the imposition of 4.5% export tax on Malaysian CPO in April 2015, competition from Indonesian palm oil producers and other edible oils, as well as weaker biodiesel demand,” the CIMB analyst added.
The report said: “Indonesian CPO has become more competitive, following its government’s proposal last month to impose a US$50 (RM180) per tonne palm oil levy to fund its biodiesel mandates.
“Since the proposal, domestic CPO price in Indonesia has been trading at a wider discount to the international CPO price to partially reflect the possible tax levy. This has improved the competitiveness of Indonesian refiners due to lower feedstock costs. Overall, the rise in output trumped local consumption and exports,” CIMB Research noted.
Its survey revealed that Sabah estates posted the strongest jump in output, of around 15.6% m-o-m, followed by Peninsular Malaysia estates, with around 13% m-o-m, and Sarawak estates that registered 11% m-o-m rise in output.
The research house expects stocks to breach the two million mark, assuming domestic consumption of 255,000 tonnes (the six-month average) and flattish m-o-m imports for April.
The variance between the CIMB survey’s numbers and actual MPOB stock figures ranges between 0% and 9%.
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