Worries persist over high CPO inventory in Malaysia
KUALA LUMPUR: Analysts continue to worry over high palm oil inventory which continued to swell by eight per cent month-on-month to 2.72 million tonnes in October.
The higher inventory is mainly caused by higher production -- up by six per cent m-o-m to 1.96 million tonnes -- and lower exports which has gone down by three per cent m-o-m to 1.57 million tonnes.
An analyst at Affin Hwang Investment Bank Bhd (AffinHwang Capital) said the rise in October’s CPO production was the highest monthly CPO production over the past 12 months as production improved in Peninsular Malaysia and Sabah, rising by 5.7 per cent and 15.1 per cent m-o-m respectively to 1.01 million metric tonnes and 0.5 million metric tonnes
Meanwhile, CPO production in Sarawak fell by 2.1 per cent m-o-m to 0.45 million metric tonnes.
“We think Malaysia’s CPO production could potentially slow down over the next few months as we enter the monsoon period,” she said in an analyst report yesterday, adding “2018 CPO production will likely be slightly lower than 2017’s total CPO production of 19.92 million metric tonnes.”
Despite exports coming in lower for October, researchers with Kenanga Investment Bank Bhd (Kenanga Research) observed an astounding increase in exports to China -- a growth of 94.2 per cent on a monthly basis -- which is a possible sign of the country fulfilling its pledge to increase CPO imports from Malaysia.
“While we observed lower exports to India (a drop by 56.5 per cent m-o-m) and the European Union (a dip of 27.2 per cent m-o-m), it is noteworthy that cumulative purchases up to October 2018 from the countries were still up nine and two per cents year on year, respectively
“Despite strong production and a potential CPO price recovery in the coming months, we maintain our neutral stance on the sector as uncertainties vis-à-vis trade war prevail, which continue to hurt the industry’s sentiment and cap further upsides to CPO prices beyond our assumptions.