The Star Online (11/07/2018) - KUALA LUMPUR: CIMB Equities Research is retaining its neutral outlook on the plantations sector while it expects palm oil to benefit indirectly from the US-China trade row.
It said on Wednesday China imposed a 25% import duty on soybean from the US since July 6 , in retaliation against the US’ move to impose tariffs on US$34bil of Chinese goods.
“This could lead to higher prices of soybeans and its related products in China, leading to weaker demand for soybeans which could indirectly benefit palm oil in the medium term,” it said.
CIMB Research said the other factor to watch is the development of El Nino conditions. BOM recently raised the probability of El Nino conditions forming to 50%.
“We maintain our Neutral sector rating. Upside risks: higher CPO price and output. Downside risks: weaker demand for palm oil, lower CPO prices and slower new plantings,” it added.
Malaysia’s palm oil stocks grew 1% on-month (+43% on-year) to 2.19 million tonnes as at end-June
This was 3% above its forecast and 1%-5% above Bloomberg and Reuters’ poll estimates.
The higher-than-expected stockpile against CIMB Research’s forecast was mainly due to lower-than-expected exports which are negative for CPO prices in the short-term given the high inventories in Malaysia and heading into the high palm production season.
The research house said June was the second consecutive yearly decline in monthly output in 2018.
CPO production fell 12.6% on-month in June to 1.33 million tonnes due to lower productivity at the estates due to the festive holiday.
“The monthly production was spot on against our forecast but was below June 2017’s production level, suggesting that the strong recovery in yields witnessed since 2H17 is tapering off.
“The 1H18 production of 8.9 million tonnes (+2% on-year) was broadly in line with our 2018 production estimate of 20.6 million tonnes (+3.3% on-year).
It also pointed out that palm oil exports fell 12.6% on-month to 1.129 million tonnes in June 2018. The exports figure was lower compared to its projection of a 10% decline in exports.
This was mainly due to weaker demand from China and Pakistan which more than offset the stronger demand from India.
“We believe the lower demand for palm oil could be due to destocking activities and possibly the shifting of CPO imports from Malaysia to Indonesia.
“We estimate palm oil stocks to rise 11% on-month to 2.42 million tonnes at end-July 2018F.
“We project July production to grow 9% on-month as harvesting activities pick up following the return of workers from the festive celebration, and exports to fall 5% on-month due to continued weak demand from key importing countries,” it said.
According to cargo surveyor SGS/Intertek, palm oil exports in the first 10 days of July fell 24%/14% vs. the first 10 days of June. The weak demand could be due partly due to the weaker currencies of key importing countries like India and China.
Read more at https://www.thestar.com.my/business/business-news/2018/07/11/cimb-research-neutral-on-plantations-may-gain-from-us-china-row/