Plantations - Seasonally-lower supply & weak Ringgit boosted CPO prices
Recommendation: Neutral
Malaysian palm oil inventories rose 4% mom to a 19-month high of 2.17m tonnes in Oct, 1% above our and consensus projections. We view this as a neutral event as the stock level remains manageable. We expect short-term CPO prices to remain range-bound. The key positive price drivers are seasonally-lower palm oil output in the coming months, the increase in Malaysia's biodiesel mandate from 5% to 7% in Nov and upcoming festival restocking activities. However, this is offset by bumper soybean supplies in the US and weak crude oil prices that lower CPO biodiesel breakeven support. Our Neutral stance and top picks, First Resources, AALI and SIMP, are intact.
What Happened
Oct palm oil stocks in Malaysia rose 4% mom to 2.17m tonnes, 1% above our and consensus estimates due to higher-than-expected production and imports. FFB production fell 0.2% mom and 4% yoy as FFB yields achieved by the estates declined due to the impact of drought in 1Q14 and seasonal factors.
What We Think
We view the stock figures as a neutral event for CPO prices. The monthly data revealed that CPO production in Malaysia peaked in Aug and is likely to decline during the rest of the year due to seasonal factors. This, coupled with the improving sunflower oil prices, weaker Ringgit and reports that palm oil shipments for the first 10 days of Nov rose 1.3%, is reason for the improvement in CPO prices from its YTD low. However, we think that the upside to CPO price may be capped by the bumper US soybean supplies and lower Brent crude oil prices (US$84 per barrel), which translates into lower CPO biodiesel breakeven price of RM1,982 per tonne. For Nov 2014, we project that palm oil stocks in Malaysia will fall 3% mom to 2.1m tonnes due to lower production. We maintain our view that CPO prices will trade in the range of RM2,000-2,500 per tonne for the rest of the year.
What You Should Do
We maintain our average CPO price of RM2,390 per tonne for 2014 and advise investors to be selective in their stock picks. Under our coverage, we favour First Resources, AALI and SIMP.
Source: CIMB Daybreak - 11 November 2014
Recommendation: Neutral
Malaysian palm oil inventories rose 4% mom to a 19-month high of 2.17m tonnes in Oct, 1% above our and consensus projections. We view this as a neutral event as the stock level remains manageable. We expect short-term CPO prices to remain range-bound. The key positive price drivers are seasonally-lower palm oil output in the coming months, the increase in Malaysia's biodiesel mandate from 5% to 7% in Nov and upcoming festival restocking activities. However, this is offset by bumper soybean supplies in the US and weak crude oil prices that lower CPO biodiesel breakeven support. Our Neutral stance and top picks, First Resources, AALI and SIMP, are intact.
What Happened
Oct palm oil stocks in Malaysia rose 4% mom to 2.17m tonnes, 1% above our and consensus estimates due to higher-than-expected production and imports. FFB production fell 0.2% mom and 4% yoy as FFB yields achieved by the estates declined due to the impact of drought in 1Q14 and seasonal factors.
What We Think
We view the stock figures as a neutral event for CPO prices. The monthly data revealed that CPO production in Malaysia peaked in Aug and is likely to decline during the rest of the year due to seasonal factors. This, coupled with the improving sunflower oil prices, weaker Ringgit and reports that palm oil shipments for the first 10 days of Nov rose 1.3%, is reason for the improvement in CPO prices from its YTD low. However, we think that the upside to CPO price may be capped by the bumper US soybean supplies and lower Brent crude oil prices (US$84 per barrel), which translates into lower CPO biodiesel breakeven price of RM1,982 per tonne. For Nov 2014, we project that palm oil stocks in Malaysia will fall 3% mom to 2.1m tonnes due to lower production. We maintain our view that CPO prices will trade in the range of RM2,000-2,500 per tonne for the rest of the year.
What You Should Do
We maintain our average CPO price of RM2,390 per tonne for 2014 and advise investors to be selective in their stock picks. Under our coverage, we favour First Resources, AALI and SIMP.
Source: CIMB Daybreak - 11 November 2014
