Unusual drop in February stocks no deterrent for palm oil

KUALA LUMPUR: Malaysia’s palm oil inventories dropped consecutively despite exports slumping to a one-year low as domestic consumption picked up strongly.

To note, inventories dropped 5.3 per cent month on month (m-o-m) to 1.45 million metric tonnes (MT) – the lowest level in six years.

It is also slightly below consensus estimates of 1.48 million MT. Despite weaker exports demand, CPO production also weakened while domestic consumption surged 47 per cent m-o-m. On a yearly basis, inventories tumbled 33 per cent y-o-y.

Public Investment Bank Bhd (PublicInvest Research) in its report said palm oil exports dropped 14 per cent m-o-m after a 1.5 per cent rise in the previous month.

“For the year to date in total, overall palm oil exports increased by 1.1 per cent,” it said in its note yesterday. “Stronger demand from European Union (11.8 per cent), Pakistan (3.4 per cent) and US (0.8 per cent) was outpaced by a drop in the world two largest palm oil consuming countries, namely China (38.4 per cent) and India (4.2 per cent).

“China’s demand had shrunk steeply due as demand softened after the Chinese New Year celebration.”

This came as crude palm oil (CPO) production experienced a five-month straight decline due to the low production season, marking the lowest level since March 2016.

“Production in Peninsular Malaysia grew 4.2 per cent m-om while East Malaysia fell seven per cent m-o-m,” PublicInvest Research observed. “Nevertheless, on an annual basis, production in both Peninsular and East Malaysia jumped 15 per cent and 28 per cent respectively.”

Meanwhile, Kenanga Investment Bank Bhd (Kenanga Research) steadfastly held on to its opinion that production and exports for palm oil will pick up going ahead.

“All major producing regions saw y-o-y monthly production growth of between 15 to 36 per cent, which we think demonstrates some production recovery from the major drought in mid-2015,” it stated in a separate note, adding its predictions for March production to pick up by 15 per cent to 1.45 million MT.

“Although we understand that early-2016 dryness in Sabah could continue to slow recovery there, we expect Peninsular Malaysia and particularly Sarawak production to see good yearly growth going forward.

“We believe that February 2017’s production is the bottom for the year, and expect to see decent growth in the coming months, and a better pickup in 2H17.”