(The opinions expressed in this article represent the view of leadingpalm oil market analyst Ivan Wong. They should not be seen as necessarilyreflecting the views of Reuters)
KUALA LUMPUR, March 21 - Our supply estimate for February hit thebull's eye. Production alone fell 17.3 percent or 161,600 tonnes to773,300 tonnes. On an annual basis, the crop shrank 13 percent or 115,400tonnes. This reflected entirely a severe contraction of 20.8 percent or116,700 tonnes in Peninsular Malaysia. In East Malaysia production growthin Sarawak managed to more than offset a slight contraction of two percentin Sabah. For the first two months this year, output in the country shrank12.5 percent or 243,000 tonnes. This was due primarily to a decline of209,300 tonnes in Peninsular Malaysia. The poor production performance wascaused solely by a drop in the yield of FFBs.Production is tentatively estimated to increase by around nine percenton a month-on-month basis this month. However, the negative growth trendcontinues albeit at a slower rate of about five percent, and results in acontraction of 10 percent for the January-March period. For the April-Junequarter, we expect a modest improvement in the contraction to fivepercent. This would bring production in first-half 2002 to about 5.25million tonnes or 7.4 percent lower than the corresponding period of lastyear. For the whole of this year, we project output to be marginallyhigher at 11.9 million tonnes. Increased hectarage under harvest alongwith further improvement in the oil extraction rate (OER) will offset adrop in the average yield of FFBs. A year ago we projected production in2001 to increase 7.9 percent to 11.7 million tonnes. The final outcome wasa growth of 8.9 percent to 11.8 million tonnes. The higher than projectedperformance wasattributed entirely to a much better than expected increase in the oilextraction rate (OER). For Indonesia, we project its CPO output this yearto grow 8.6 percent or 700,000 tonnes to 8.8 million tonnes. This issomewhat less than last year's expansion of an estimated 900,000 tonnes.Stocks of palm oil rose 35,400 tonnes to 1.283 million tonnes at endFebruary. This was 13,000 tonnes more than our estimate and reflectedofftake that fell short of our estimate by 12,000 tonnes. Palm oil exportsfell to 663,300 tonnes in February from 840,100 tonnes (revised from627,500 tonnes) in January and 821,700 tonnes a year ago. For the firsttwo months this year, exports shrank 154,000 tonnes to 1.50 milliontonnes. Exports should recover on a month-on-month basis to 830,000 tonnesthis month but will fall short of March 2001's robust level of 978,000tonnes. This reflected continued contraction in shipments to India.Malaysia's palm oil exports to India fell severely by 161,700 tonnesor 43 percent to 213,500 tonnes in January-February. Figures compiled bytrade sources in India showed the country reduced its imports of CPO andOlein by 260,000 tonnes or 44 percent to around 330,000 tonnes. Along withother edible oils, India had cut imports by 444,000 tonnes or 49 percentto 470,000 tonnes. For the first-four months of the crop season (toFebruary 2002), India cut its edible oils imports by 524,000 tonnes or32.7 percent to 1.08 million tonnes. India will be dislodged as Malaysia'slargest palm oil importer this month.China is the most likely importer to emerge as the leading market forpalm oil although it might not be able to hold on tothe pole position for the whole year. Malaysia's palm oil exports to Chinaincreased 57,000 tonnes to 201,000 tonnes in January- February.Palm oil market has assumed a steady to firm stance so far this month.Initially it was boosted by strength in U.S. soyafutures market on account of chart-oriented speculative buying. The marketturned firm last week. The June CPO futures contract tested the 1,200ringgit level in activity trading early this week but surrendered all itsgains of 20 ringgit by the end of the day (Monday). Activity in bothfutures and cash slowed down in the last two days with price moving withina narrow range. Yesterday June settled at 1,172 ringgit. Outlook for adowntrend in stocks with end-March level estimated to drop at least100,000 tonnes is supportive for the market.