The Malaysian Reserve (14/07/2020) - MALAYSIA’S crude palm oil (CPO) inventory is expected to rise in the second half (2H) of 2020 as production moves into peak season and replenishing activities by major importers wane.
MIDF Amanah Investment Bank Bhd (MIDF Research) analyst Martin Foo Chuan Loong, in a report, noted that the industry’s stock levels will rebound above the two-million-tonne mark as import demand tapers off and production peaks between July and October.
Production will be boosted in 2H by the aggressive fertiliser application in 1H of the year as a result of the supportive CPO prices.
CPO inventory in the country fell for two consecutive months to 1.9 million tonnes in June from 2.03 million tonnes in May, a 6.33% decline on a monthly basis, according to recent data from the Malaysian Palm Oil Board.
Malaysia’s CPO exports in June jumped by 24.9% month-on-month (MoM) to 1.71 million metric tonnes on higher demands from China (+55.6% MoM), India (+347.7% MoM) and Pakistan (+71.6% MoM).
Exports rose 22.37% year-on-year largely due to higher demands from China and Pakistan.
“We opine this was primarily attributable to the easing of lockdown and low vegetable oil stocks in the major palm oil-consuming countries, as well as export duty exemption-induced demand.
“This was slightly higher than the consensus’ expectation by 0.6%,” Foo said.
CPO production level in June rose 14.19% to 1.89 million tonnes compared to 1.65 million tonnes in May as the industry moved into the seasonal peak production period. The increase was the highest since October 2018.
On an annual basis, the production in June was 24.8% higher.
Volume to date was 7.4% lower due to the high base effect as well as lagged effects arising from the unfavourable weather conditions in the previous corresponding period, Foo said.
Geographically, the lower output stemmed from lower contributions from several states including Negri Sembilan with a decline of 19.5% year-to-date (YTD), Pahang (14.4%), Kelantan (13.6%), Sabah (11.2%) and Terengganu (9.9%).
Public Investment Bank Bhd (PublicInvest) stated that CPO price made a strong comeback after hitting a low of RM1,946 per tonne in mid-May and has averaged at RM2,477 per tonne to date.
“CPO futures contract prices settled down at RM2,420 per tonne, down 20.7% YTD in June,” it said in a sectoral update report yesterday.
On the global front, Indonesia — the largest CPO producer — saw its stock level rise to a three-month high of 3.53 million tonnes in May from 3.37 million tonnes in April, due to a fall in exports.
Export delivery from the country dropped to 2.43 million tonnes in May due to stiffer competition from Malaysia producers and a narrower spread between palm oil and soybean oil prices, PublicInvest stated.
MIDF Research is maintaining the average CPO price target of RM2,300 per tonne and RM2,450 per tonne for 2020 and 2021 respectively, despite the potentially higher inventory level and subdued exports in 2H of the year.
Read more at https://themalaysianreserve.com/2020/07/14/cpo-inventory-to-rise-in-2h/