Palm oil inventory seen at highest level in April

KUALA LUMPUR: Malaysian palm oil stocks is likely to be at the highest level in April since December 2019, up by 14% month-on-month to 1.97 million tonnes due to stronger crude palm oil (CPO) output.

CGS-CIMB Futures survey revealed that Malaysia’s crude palm oil (CPO) output likely grew by 19% month-on-month (m-o-m) to 1.66 million tonnes in April due to a seasonal recovery in fresh fruit bunch (FFB) yields, recovery of crops from shutdowns in March from the movement control order (MCO) in some areas and low production base in March.

“Our projected 19% m-o-m rise in CPO output in April is stronger than the historical trend and would rank as the strongest m-o-m growth in output for the month since 1999,” it said.

In the last 10 years, CPO production posted an average of 3.8% m-o-m gain in April.

Recall that shuttering of plantations was also reported in some Sabah estates towards end-march and the first 10 days of April.

“However, the disruption to production appears to have been more than offset by a recovery in FFB yields from estates in Peninsular Malaysia and Sarawak,” it added.

Meanwhile, CGS-CIMB Research expected palm oil exports to improve by 2% m-o-m in April to 1.2 million tonnes, lagging behind the historical average April monthly palm oil exports of 1.35 million tonnes in the past 10 years.

It pointed out that the weaker exports were likely dragged by global lockdowns in April to curb the spread of Covid-19, which has significantly reduced the demand for palm oil from the hospitality sector, as well as biodiesel usage due to lower diesel consumption.

“The sharp recovery in output, coupled with weak exports, will likely stoke fears of a rapid accumulation of stocks, which is negative for CPO prices,” it stressed.

In April, CGS-CIMB Research noted that average CPO price slipped 3% m-o-m but rose 14% y-o-y to RM2,299 per tonne due to the expected recovery in palm oil supplies in the coming months coupled with sluggish demand from the MCO.

Given that the lower palm oil stockpile has kept CPO prices at above year-ago levels, it said the replenishment of stocks could happen quickly should demand remains weak in the next few months.

“We project CPO prices to trade in the range of RM2,000 to RM2,200 per tonne in May.

“We maintain our sector ‘neutra’l rating on the plantation sector.

“Key support will come from seasonal festive demand and low stocks at consuming countries,” it added.