June’s CPO stock to be flat, strong demand surge for palm oil expected

KUALA LUMPUR: 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.”