Plantation’s September inventory within expectations
KUCHING: September ’ s plantation results are looking good as palm oil inventory is within expectations, breaching the two million metric tonne mark market expectations slightly as of end- September.
Commenting on the inventory figures, the research arm of Kenanga Investment Bank Bhd ( Kenanga Research) said as the 2.02 million MT inventory f igure was a four per cent increase month on month (m- om) and was the first time since February 2016 that palm oil inventory had crossed the 2.00 million MT threshold.
While these figures were within market expectations, they fel l short of Kenanga Research’s expectations of 2.10 million MT as well as MIDF Amanah Investment Bank Bhd’s ( MIDF Research) expectations of 2.08 million MT.
According to MIDF Research, this was caused by weaker-than-expected September production which was caused by shorter working days and ongoing labour shortage problems.
Note that there are four public holidays in September. However, we believe that production should continue to increase in October as things normalise with one public holiday in this month,” analysed the research arm.
With that said, both research arms are expecting October’s inventory to rise by 4 per cent m- o- m to 2.09 or 2.10 million MT.
Looking towards exports, September figures also saw slight improvement of 2 per cent to 1.52 million MT.
This was however, short of market expectations of a 6 per cent increase to 1.61 million MT and was due to a sharp drop of - 39 per cent in EU demand to 109,000 MT.
Other countries also saw a - 6 per cent drop to 774,000 MT which was offset by improvements to Chinese exports by + 42 per cent to 275,000 MT and Pakistan by 86 per cent to 128,000 MT.
Going forward, we expect exports to China, India and Pak istan to trend down especially in late October post-festival season. However, we think the EU demand was well below average and should see some recovery going forward.
With better palm oil availability on stock increases, we expect slightly better exports at +2 per cent to 1.55 million MT in October, 2017,” the research arm reasoned.
And looking forward in crude palm oil (CPO) prices, Kenanga Research is anticipating a bearish outlook on CPO prices for the fourth quarter of 2017 (4Q17) at RM2,500 per MT due to the increasing competitiveness of CPO prices against its closest competitor – soybean oil (SBO) prices.
In recent weeks, SBO prices have corrected from US$ 778 per MT on September 6 to US$ 726 per MT currently, or by 6.7 per cent. However, against the same period, CPO prices were actually f lat at - 0.2 per cent to US$ 644 per MT.
As a result, the CPO discount to SBO has narrowed by some 38.0 per cent to US$ 82 per MT. This could well have a dampening ef fect on CPO demand, especially as USA soybean harvest season gets underway from October to November, lending support to our bearish outlook,” justified the research arm.
On the other hand, MIDF Research‘ s expectations are slightly higher as they expect CPO prices to float between RM2,700 and RM2,950 per MT throughout 4Q17.
For the ceiling of RM2950 per MT, we believe that most palm oil producers will sell forward in a significant way when price gets closer to RM3,000 per MT and hence the upside is limited at RM2,950 per MT,” guided the research arm.
Al l in both analysts are maintain their ‘ Neutral’ stance on the plantation sector as they expect solid earnings contributions in the coming quarters on the back of sustained high CPO prices to- date to offset some of the volatility in CPO prices.