Plantations - Preview of Feb palm oil stocks
Recommendation: Neutral
Our futures team’s survey of 24 planters suggests that Malaysian palm oil output in Feb 15 probably declined 4.5% mom to 1.1m, the lowest since Feb 11, due to seasonal factors. However, export demand also remained weak, falling by 14.5% mom due to competition from other edible oils and weaker demand for biodiesel usage. Overall, we estimate that stocks declined by 4% mom to a 7-month low of 1.71m tonnes at end-Feb 15. We view the lower inventory as near-term supportive of CPO price but we are also concerned about the weak exports. We maintain our Neutral sector rating, with a preference for First Resources, AALI and SIMP.
What Happened
A survey of 24 Malaysian planters by the CIMB futures team suggests that CPO production in Feb 15 probably fell by 4.5% mom to 1.1m tonnes. We believe this was due to seasonal factors, fewer working days and tree stress from the drought in parts of Malaysia in 1Q14. The survey revealed that Sabah estates posted the largest decline in CPO production (-10% to -40%). Sarawak estates registered 7-13% output slippage while output from estates in Peninsular Malaysia rebounded by 8-40% mom. Estates in Peninsular Malaysia appear to be recovering from the severe flooding in Dec 2014. Malaysian palm oil exports remained weak, falling by 14.5% mom based on Intertek estimates. For Feb 15, we have assumed domestic consumption of 251,000 tonnes (six months average) and flattish imports mom. Based on the above assumptions, we estimate that Malaysian palm oil inventories probably fell by 4% mom to a 7-month low of 1.71m tonnes at end-Feb 15. The variance of 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 March 2015 (next Tuesday).
What We Think
The key takeaway from our estimates is that output for Feb 2015 will probably turn out to be the weakest for Malaysian estates since Feb 2011 due to the weather. The not-so-good news is that the monthly exports of palm oil by Malaysia were disappointing and may have fallen to its lowest since June 2007. Overall, the drop in output trumped the fall in exports. As a result, we estimate that overall palm oil stocks in Malaysia slipped to 1.71m tonnes at end-Feb. The falling inventory level will be supportive of CPO prices as it suggests tighter supplies for this key producing country. Our main concern for CPO price prospects lie in the risk that demand may weaken, following the sharp drop in crude oil prices and soybean oil’s more competitive price against CPO. This, combined with the absence of El Nino which typically leads to drier weather in Southeast Asia, may cause a build-up in palm oil inventory in the later part of the year. As such, we continue to view the proposal by the Indonesian government to raise the biodiesel subsidy to Rp4,000 per litre as a critical development that will help revive biodiesel demand in Indonesia and support CPO price.
What You Should Do
Average CPO prices for Feb 2015 fell 1.3% mom to RM2,264 per tonne. This was broadly in line with our expectations. As such, we are keeping our Neutral stance on the sector.
Source: CIMB Daybreak - 04 March 2015
Recommendation: Neutral
Our futures team’s survey of 24 planters suggests that Malaysian palm oil output in Feb 15 probably declined 4.5% mom to 1.1m, the lowest since Feb 11, due to seasonal factors. However, export demand also remained weak, falling by 14.5% mom due to competition from other edible oils and weaker demand for biodiesel usage. Overall, we estimate that stocks declined by 4% mom to a 7-month low of 1.71m tonnes at end-Feb 15. We view the lower inventory as near-term supportive of CPO price but we are also concerned about the weak exports. We maintain our Neutral sector rating, with a preference for First Resources, AALI and SIMP.
What Happened
A survey of 24 Malaysian planters by the CIMB futures team suggests that CPO production in Feb 15 probably fell by 4.5% mom to 1.1m tonnes. We believe this was due to seasonal factors, fewer working days and tree stress from the drought in parts of Malaysia in 1Q14. The survey revealed that Sabah estates posted the largest decline in CPO production (-10% to -40%). Sarawak estates registered 7-13% output slippage while output from estates in Peninsular Malaysia rebounded by 8-40% mom. Estates in Peninsular Malaysia appear to be recovering from the severe flooding in Dec 2014. Malaysian palm oil exports remained weak, falling by 14.5% mom based on Intertek estimates. For Feb 15, we have assumed domestic consumption of 251,000 tonnes (six months average) and flattish imports mom. Based on the above assumptions, we estimate that Malaysian palm oil inventories probably fell by 4% mom to a 7-month low of 1.71m tonnes at end-Feb 15. The variance of 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 March 2015 (next Tuesday).
What We Think
The key takeaway from our estimates is that output for Feb 2015 will probably turn out to be the weakest for Malaysian estates since Feb 2011 due to the weather. The not-so-good news is that the monthly exports of palm oil by Malaysia were disappointing and may have fallen to its lowest since June 2007. Overall, the drop in output trumped the fall in exports. As a result, we estimate that overall palm oil stocks in Malaysia slipped to 1.71m tonnes at end-Feb. The falling inventory level will be supportive of CPO prices as it suggests tighter supplies for this key producing country. Our main concern for CPO price prospects lie in the risk that demand may weaken, following the sharp drop in crude oil prices and soybean oil’s more competitive price against CPO. This, combined with the absence of El Nino which typically leads to drier weather in Southeast Asia, may cause a build-up in palm oil inventory in the later part of the year. As such, we continue to view the proposal by the Indonesian government to raise the biodiesel subsidy to Rp4,000 per litre as a critical development that will help revive biodiesel demand in Indonesia and support CPO price.
What You Should Do
Average CPO prices for Feb 2015 fell 1.3% mom to RM2,264 per tonne. This was broadly in line with our expectations. As such, we are keeping our Neutral stance on the sector.
Source: CIMB Daybreak - 04 March 2015
