Impact of US-China rift outweighs decline in CPO stockpiles

KUALA LUMPUR: The adverse effects on crude palm oil (CPO) price from USChina trade war have far outweighed the larger-than-expected decline in stockpiles, analysts continue to observe on the plantation sector.

As per the Malaysian Palm Oil Board’s latest statistics, production of CPO for April 2019 amounted to 1.65 million tonnes, down from 1.56 million tonnes in the corresponding month of the previous year.

The closing stock of palm oil inventory totalled 2.73 million tonnes at the end of the month, up from 2.19 million tonnes in April 2018. However, on a month on month basis, it was a decline from 2.92 million tonnes in March 2019.

“The lower inventory level was primarily owing to the higher export demand ahead of Ramadan season and tapering output level amid the historically low seasonal output period,” the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) observed.

“However, on a year-on-year (y-o-y) basis, we view that the current inventory level remains elevated as the April ending stock was still higher by 25.1 per cent y-o-y.

“This is mainly due to both April 2019 and the first four months of current year 2019 (4M19) output increasing by 5.8 per cent y-o-y and 8.9 per cent y-o-y respectively and higher inventory carried forward.

Nonetheless, MIDF Research opined this was a slight relief to the oversupply conundrum but was not enough to mitigate the downward pressure on CPO price caused by the heightened trade tension.