Plantations - Preview of Jan palm oil stocks
Recommendation: Neutral
A survey conducted by our futures team with 17 planters revealed that Malaysian palm oil output probably declined 17% mom to 1.13m tonnes in Jan 15, the lowest since Feb 11, due seasonal factor and flooding in East Malaysia. However, palm oil exports have also remained weak, falling by 14.8% mom due to competition from other edible oils and weaker demand for biodiesel usage. Overall, we project stocks to decline by 13% mom to a 6-month low to 1.75m tonnes as at end-Jan 15. The lower stock is near-term supportive of CPO price but our concerns over biodiesel demand risk remains. We maintain our Neutral rating and preference for First Resources, AALI and SIMP.
What Happened
A survey of 17 Malaysian planters by our CIMB futures team revealed that CPO production in Jan 15 probably fell by 16.9% mom to 1.13m tonnes. We believe this was due to seasonal factors, tree stress from drought in parts of Malaysia in 1Q14, and flooding in parts of East Malaysia (Sabah and Sarawak) due to the ongoing monsoon. Our survey revealed that Sabah estates posted the largest decline in CPO production (-15% to -30%). Peninsular Malaysia estates registered 9-26% drop in their production, while estates in Sarawak reported a decline of 0-30%. Estates in Peninsular Malaysia may still be suffering from the lagged effect from the severe flooding in the previous month. Malaysian palm oil exports remained fairly weak, falling by 14.6% mom according to SGS and 15.2% based on Intertek estimates. Overall, we estimate palm oil exports probably fell 14.8% mom to 1.295m tonnes in Jan 2015. This was due to weaker demand from all key customers, with the exception of the US, and could be due to competition from other oilseeds and weaker biodiesel demand. We have assumed domestic consumption and imports to remain flattish mom. Based on the above assumptions, we project Malaysian palm oil inventories probably fell by 13% mom to a 6-month low of 1.75m tonnes as at end-Jan 15. The variance in our survey from the actual MPOB stock figures since we started producing the monthly stock preview in Aug 2014 has been 0-5%. The official figure will be released by MPOB on 10 Feb 2015 (next Tuesday).
What We Think
The key takeaway from our estimates is that output for Jan 2015, will probably be the weakest monthly output achievement by the Malaysian estates since Feb 2011, due to the weather. The not-so-good news is that the monthly exports for palm oil from Malaysia had also been weak, falling to its 10-month low. Overall, the drop in output trumped the falling exports. As a result, we project that overall palm oil stocks in Malaysia are likely to fall to 1.75m tonnes. The falling inventory level will be supportive of CPO prices as it suggests tighter supplies at the key producing country. Our main concern for CPO price prospects lie in the risk that biodiesel demand may weaken, following the sharp drop in crude oil prices. This, combined with the absence of El Nino which typically leads to drier weather in South East Asia, may cause a build-up in palm oil inventory in the later part of the year. As such, we view the recent proposal by the Indonesian government to raise biodiesel subsidy to Rp5,000 per litre to be a critical development to help revive biodiesel demand in Indonesia.
What You Should Do
Average CPO prices for Jan 2015 rose 7% mom to RM2,294 per tonne due to concerns over potential supply disruptions due to the monsoon. This was broadly in line with our expectations. As such, we are keeping to our Neutral rating on the sector.
Source: CIMB Daybreak - 05 February 2015
Recommendation: Neutral
A survey conducted by our futures team with 17 planters revealed that Malaysian palm oil output probably declined 17% mom to 1.13m tonnes in Jan 15, the lowest since Feb 11, due seasonal factor and flooding in East Malaysia. However, palm oil exports have also remained weak, falling by 14.8% mom due to competition from other edible oils and weaker demand for biodiesel usage. Overall, we project stocks to decline by 13% mom to a 6-month low to 1.75m tonnes as at end-Jan 15. The lower stock is near-term supportive of CPO price but our concerns over biodiesel demand risk remains. We maintain our Neutral rating and preference for First Resources, AALI and SIMP.
What Happened
A survey of 17 Malaysian planters by our CIMB futures team revealed that CPO production in Jan 15 probably fell by 16.9% mom to 1.13m tonnes. We believe this was due to seasonal factors, tree stress from drought in parts of Malaysia in 1Q14, and flooding in parts of East Malaysia (Sabah and Sarawak) due to the ongoing monsoon. Our survey revealed that Sabah estates posted the largest decline in CPO production (-15% to -30%). Peninsular Malaysia estates registered 9-26% drop in their production, while estates in Sarawak reported a decline of 0-30%. Estates in Peninsular Malaysia may still be suffering from the lagged effect from the severe flooding in the previous month. Malaysian palm oil exports remained fairly weak, falling by 14.6% mom according to SGS and 15.2% based on Intertek estimates. Overall, we estimate palm oil exports probably fell 14.8% mom to 1.295m tonnes in Jan 2015. This was due to weaker demand from all key customers, with the exception of the US, and could be due to competition from other oilseeds and weaker biodiesel demand. We have assumed domestic consumption and imports to remain flattish mom. Based on the above assumptions, we project Malaysian palm oil inventories probably fell by 13% mom to a 6-month low of 1.75m tonnes as at end-Jan 15. The variance in our survey from the actual MPOB stock figures since we started producing the monthly stock preview in Aug 2014 has been 0-5%. The official figure will be released by MPOB on 10 Feb 2015 (next Tuesday).
What We Think
The key takeaway from our estimates is that output for Jan 2015, will probably be the weakest monthly output achievement by the Malaysian estates since Feb 2011, due to the weather. The not-so-good news is that the monthly exports for palm oil from Malaysia had also been weak, falling to its 10-month low. Overall, the drop in output trumped the falling exports. As a result, we project that overall palm oil stocks in Malaysia are likely to fall to 1.75m tonnes. The falling inventory level will be supportive of CPO prices as it suggests tighter supplies at the key producing country. Our main concern for CPO price prospects lie in the risk that biodiesel demand may weaken, following the sharp drop in crude oil prices. This, combined with the absence of El Nino which typically leads to drier weather in South East Asia, may cause a build-up in palm oil inventory in the later part of the year. As such, we view the recent proposal by the Indonesian government to raise biodiesel subsidy to Rp5,000 per litre to be a critical development to help revive biodiesel demand in Indonesia.
What You Should Do
Average CPO prices for Jan 2015 rose 7% mom to RM2,294 per tonne due to concerns over potential supply disruptions due to the monsoon. This was broadly in line with our expectations. As such, we are keeping to our Neutral rating on the sector.
Source: CIMB Daybreak - 05 February 2015
